lec14-eco101-11

lec14-eco101-11 - InternationalTrade Lecture14 c...

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Unformatted text preview: InternationalTrade Lecture14 c Marc-AndreasMuendler UniversityofCalifornia,SanDiego November15,2011 14.InstrumentsofTradePolicy Econ101, c M.Muendler InstrumentsofTradePolicy Instrumentsoftradepolicy Tariffsandexportsubsidies:Pricedistortions Quotas:Quantityrestrictions Behind-the-borderrestrictions:Quality,environmentalandlabor standards,procurementrestrictions Terms-of-tradeandwelfareeffects (generalandpartialequilibrium) Winnersandlosers:Distribution (generalandpartialequilibrium) 14.InstrumentsofTradePolicy Econ101, c M.Muendler RestrictionsandBarrierstoTrade Tariffsandtradebarriersdriveawedgebetween external (world- market)pricesand internal (domestic)prices Importtariffshavethesameterms-of-tradeeffectasexporttaxes Example .Home,aclothexporter,imposesanimporttariff onfood. Internal(domestic)relativeprices: P C P F (1+ ) External(world-market)relativeprices: P C /P F Homerelativeclothdemand Q d C /Q d F rises,Homerelativeclothsup- ply Q C /Q F fallsforanygiven world-marketpriceratio P C /P F 14.InstrumentsofTradePolicy Econ101, c M.Muendler Tariffs,theTermsofTrade,andWelfare Homewelfaremayormaynotimprovewithimporttariffs IfHomeisa small countryandworld-marketpricesdonotchange withitspolicies,Homesuffersanunambiguouswelfare loss from atariff IfHomeisa large countryandworld-marketpriceschangewithits policies,Homemayrealizewelfaregainsundercertainconditions (Homebehaveslikeamonopsonistforimports) IfHomeisa large countryandworld-marketpriceschangewithits policies,theHomeToTimprovewithatariffonImports 14.InstrumentsofTradePolicy Econ101, c M.Muendler Tariffsina Small CountryandthePriceWedge AsfoodimportsfromabroadarriveattheHomeborder,theyaretaxedwithatariff. ThismakesfoodmoreexpensiveatHomesothatrelativedemandforfoodimport goodsdrops. ReducedHomedemandforfoodimportgoodsdoesnotmatterforworldmarkets. The external (world-market)priceratio P ext C /P ext F = P C /P F remains unchanged. However,insidetheHomecountry,thefoodtariffraisestherelativepricesoffood. So,the internal (domestic)priceratio P int C /P int F drops belowthepriorlevel. Homeconsumersandproducersfaceareduced internal priceratio P int C /P int F . So,forany external priceratio P ext C /P ext F = P C /P F ,consumersdemandrelatively moreclothsandproducersmakerelativelymorefood. 14.InstrumentsofTradePolicy Econ101, c M.Muendler WelfareEffectsofanImportTariffinaSmallCountry Home food output H o m e c lo th s o u tp u t Q C Q F 14.InstrumentsofTradePolicy Econ101, c M.Muendler WelfareEffectsofanImportTariffinaSmallCountry...
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This note was uploaded on 01/30/2012 for the course ECON 101 taught by Professor Jacobson during the Fall '03 term at UCSD.

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lec14-eco101-11 - InternationalTrade Lecture14 c...

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