Chapter 6

Chapter 6 - CHAPTER SIX What are the seven instruments of...

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CHAPTER SIX What are the seven instruments of trade policy? There are seven main instruments of trade policy 1. Tariffs A tariff - a tax levied on imports that effectively raises the cost of imported products relative to domestic products Why Tariffs? o increase government revenues o provide protection to domestic producers against foreign competitors by increasing the cost of imported foreign goods o force consumers to pay more for certain imports o So, tariffs are unambiguously pro-producer and anti-consumer, and tariffs reduce the overall efficiency of the world economy 2. Subsidies A subsidy - a government payment to a domestic producer o Subsidies help domestic producers o compete against low-cost foreign imports o gain export markets o Consumers typically absorb the costs of subsidies 3. Import quotas An import quota - a direct restriction on the quantity of some good that may be imported into a country Tariff rate quotas - a hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota 4. Voluntary export restraints Voluntary export restraints - quotas on trade imposed by the exporting country, typically at the request of the importing country’s government A quota rent - the extra profit that producers make when supply is artificially limited by an import quota 5. Local content requirements A local content requirement demands that some specific fraction of a good be
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This note was uploaded on 04/05/2012 for the course SOM 354 taught by Professor Staff during the Fall '11 term at Syracuse.

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Chapter 6 - CHAPTER SIX What are the seven instruments of...

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