Problem Set 3

Problem Set 3 - UNIVERSITY OF SOUTHERN CALIFORNIA Marshall...

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UNIVERSITY OF SOUTHERN CALIFORNIA Marshall School of Business FBE 462 – International Trade & Commercial Policy Problem Set #3 1) Canada currently imports all of its domestic consumption of decorative ceramic tiles (used in bathrooms, kitchens, and so forth). A leading Canadian politician has proposed a tariff of 30 percent on decorative ceramic tiles imported into the Canada. He argues that decorative ceramic tile is an infant industry in Canada, and the tariff will permit the industry to be established in Canada. You have been hired to write a report analyzing this proposal. a) What are the effects in Canada during the first few years after the tariff is imposed (the time when the Canadian industry is an infant)? Show graphically and explain the effects of the imposition of this tariff on price, quantities, surpluses, and government revenues. During this time period what are the benefits or costs to Canadian national well-being? b) Explain why protection of an infant industry may be economically justified. What questions would you try to answer before accepting this reason for protecting the Canadian industry? 2) The United States government has convinced foreign producers of clothespins to reduce their level of exports to the United States through a VER. Assume that the supply of imports into the United States under free trade is infinitely elastic at the going world price. This means that the
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