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WK9_13Oct_Ch10_Arguments

WK9_13Oct_Ch10_Arguments - Week 9(Tues-Thurs 10/1113/2011...

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Finish: Chapter 9 Nontariff Barriers (NTBs) Begin: Chapter 10 Arguments For/Against Protection Week 9 (Tues-Thurs., 10/11- 13/2011)
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U.S. Sugar Market P S S + quota 23¢ 14¢ Pw D 10.3 12.7 16.9 18.5 Q (bll. lbs.) Current Major U.S. Quota
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Loss in Consumer Surplus: $1.592 billion per year Loss per U.S. consumer (300 million): $5.25 per yr Producer Surplus per U.S. Grower (2,308): $446,577 annually Side note on other effects: Lifesavers recently closed U.S. plants and moved to Canada; 90 percent of lifesaver is sugar U.S. Sugar Market
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Losses Deadweight Losses Triangle d – consumption inefficiency loss Triangle b – production efficiency loss Other Losses of Quota Potential loss of tariff revenue, Cq Automatically more restrictive in a growing market which adds to loss of b and d Corruption or Waste of Resources to obtain import permit
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P S Pw + t Pw D Qs Qd Q Growing Market & Tariff
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No Increase in b or d loss P S additional Pw + t cost = Pw Pw+t D D’ Tariff & Growing Market
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Begin with following P S S + quota Pd’’ Pd’ Pd= Pw D Qd Qd’ Q Quota & Growing Market
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Increase in Demand P S S + quota Pd’’ Pd’ Pd= Pw D D’ Qd Qd’ Quota & Growing Market
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HIGHER Pd P S S + quota Pd’’ Pd’ Pd= Pw D D’ Qd Qd’ Quota & Growing Market
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Increase in b and d P S S + quota Pd’’ Pd’ Pd= Pw D D’ Qd Qd’ Quota & Growing Market
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‘Voluntary’ Export Restraint Domestic Content Requirement Government Procurement Product Standards Four Other Common NTBs
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Foreign suppliers convinced to ‘volunteer’ to restrain export sales to U.S. market or face potentially more restrictive policy Quota administered by foreigners Foreign suppliers receive area C -- a bribe (or a subsidy in the case of Japanese auto makers.) 1. ‘Voluntary’ Export Restraint
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Product sold in a country must have a specified minimum amount of domestic product value. Ex. “66% U.S. made” Barrier to products that do not satisfy content rule Unequivocally protectionist Ex. VW plant in Puebla, Mexico 2. Domestic Content Requirement
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Governments required to give limited or total preference to domestic producers Sizable since 10% of all sales Equivalent to quota of zero Government typically pays higher costs Eg. Buy America Act of 1933 Buy U.S. product if Pd < Pw(1+6%) If depressed area if Pd < Pw(1+12%) 50% of all DOD purchases must be domestic goods Eg. Ship American Act ¾ of all U.S. government cargoes (foreign aid, subsidized grain, etc.) and all military cargoes must go in U.S.-flag ships. 3. Government Procurement
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City government of Greece, New York (suburb of Rochester, NY) required to buy American Bought a John Deere earthmover priced at $55,000 instead of a Komatsu that was available at $40,000 Later discovered that the Deere was made in Japan and the Komatsu was made in Illinois.
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