trade policy revised 2

trade policy revised 2 - Trade Policy Analysis of a Tariff...

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Trade Policy
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Analysis of a Tariff U.S. Market for Bicycles with Free Trade
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The Effect of a Tariff on Producers
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The Effect of a Tariff on Consumers
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The Net National Loss from a Tariff in Two Equivalent Diagrams (small country)
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Nontariff Barriers to Imports
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The Effects of an Import Quota under Competitive Conditions, Small Importing Country
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Arguments for and against Protection
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Recall the effects of tariffs and NTBS: 1. Increase domestic production of the protected product 2. Increase employment in this product/industry 3. Increase government revenue 4. Alter income distribution towards this product/industry - If these effects benefit a country, implement tariffs/NTB - Usually there are “second best arguments” for tariffs/NTB; postive and negative externalities -(social MB > private MB; social MC> private MC) - Some other government policies are usually better than import barriers NOTE: assumed small country; if large country, world price will change
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Specificity Rule If an externality is present, government policy should intervene as directly as possible on the specific source of the externality, to most enhance national economic efficiency. If a country has some other objective, government policy should intervene as directly as possible on the specific objective, to minimize the national economic cost of achieving the other objective (that is, to minimize the amount of economic inefficiency created). Key: Identify the specific problem clearly, then use a policy to attack the problem directly.
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Two Ways to Promote Import- Competing Production
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The Infant Industry Argument
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Protection to Maintain Jobs, the United States
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Table: Protection to Maintain Jobs, the European Union
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National Defense A country must have access to products to maintain the national defense, especially because imports may not be readily available during times of hostilities. Apply the specificity rule: Some products can be kept in stockpiles. In this case, imports during peacetime can be used to build the stockpiles. National production capabilities are needed for other products. Best to use a subsidy to building or maintaining national production capabilities.
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Export Promotion Policies
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Dumping Selling exports at a price that is “too low,” a price below “normal value” or “fair market value.” Either The export price is lower than the price charged for comparable domestic sales in the home market of the exporter. or The export price is lower than the full unit cost (including a profit margin). Predatory, cyclical, seasonal, persistent dumping
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Persistent Dumping
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Top Ten Initiators of Anti-Dumping Cases
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Export Subsidy, Small Country, Exportable Product
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A Two-Firm Rivalry Game with No Government Subsidies: Airbus versus Boeing
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A Two-Firm Rivalry Game with Government Subsidies: Airbus versus Boeing
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Summary: Rationales for Government Intervention in Trade ECONOMIC RATIONALES NONECONOMIC RATIONALES Prevent unemployment Maintain essential
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trade policy revised 2 - Trade Policy Analysis of a Tariff...

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