types of trade protection

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26 Terms

1

trade protection

government intervention aiming to limit imports and/or encourage exports by setting up trade barriers that protect from foreign competition

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2

tariff

a tax that is placed on imports to protect domestic industries from foreign competition and to raise revenue for the government

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3

quota

an import barrier that set limits on the quantity or value of imports that may be imported into a country

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4

production subsidy (international)

an amount of money paid by the government to a firm, per unit of output, to encourage production and provide the firm an advantage over foreign competition

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5

export subsidy

payments made by the government to exporting firms on the basis of the number of units exported

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6

administrative barriers

trade barriers in the form of regulations that aim to limit imports into a country. these barriers may take the form of product safety standards, sanitary standards or pollution standards

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7

why countries might not want to engage in free trade

  • protect infant industries

  • national security

  • environmental standards

  • anti-dumping

  • unfair competition

  • government revenue

  • domestic job protection

  • ELDC diversification

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8

winners from tariffs

  • domestic producers are better off

  • domestic employment in protected industry increases

  • government gains tariff revenues

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9

losers from tariffs

  • domestic consumers are worse off

  • domestic income distribution worsens (regressive tax)

  • increased inefficiency in production

  • foreign producers are worse off

  • global misallocation of resources

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10

calculations: consumer expenditure from tariffs

consumer expenditure = P x Q

consumer expenditure before tariff = Pw x Q2

consumer expenditure after tariff = (Pw + T) x Q4

<p>consumer expenditure = P x Q </p><p>consumer expenditure before tariff = Pw x Q2 </p><p>consumer expenditure after tariff = (Pw + T) x Q4</p>
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11

calculations: consumer surplus from tariffs

consumer surplus before tariff = (max price consumers pay - Pw) x Q2 / 2

consumer surplus after tariff = (max price consumers pay - (Pw - T)) x Q4 / 2

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12

calculations: domestic producer revenue from tariff

domestic producer revenue = P x Q

domestic producer revenue before tariff = Pw x Q1

domestic producer revenue after tariff = (Pw + T) x Q3

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13

calculations: producer surplus from tariff

producer surplus before tariff = (Pw - min price to sell) x Q1 / 2

producer surplus after tariff = ((Pw + T) - min price to sell) x Q3 / 2

<p>producer surplus before tariff = (Pw - min price to sell) x Q1 / 2</p><p>producer surplus after tariff = ((Pw + T) - min price to sell) x Q3 / 2</p>
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14

calculations: foreign producer revenue from tariff

foreign producer rev = Pw x import quantity

foreign producer rev before tariff = Pw x (Q2 - Q1)

foreign producer rec after tariff = Pw x (Q4 - Q3)

<p>foreign producer rev = Pw x import quantity </p><p>foreign producer rev before tariff = Pw x (Q2 - Q1)</p><p>foreign producer rec after tariff = Pw x (Q4 - Q3)</p>
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15

calculations: gov’t revenue from tariff

gov’t rev = tariff x import quantity

gov’t revenue = T x (Q4 - Q3)

<p>gov’t rev = tariff x import quantity </p><p>gov’t revenue = T x (Q4 - Q3)</p>
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16

anti-dumping

tariffs that aim at raising the artificially low price of a dumped imported good to the level of the higher domestic price

  • dumped good: one that is exported at a price below cost of production

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17

winners from quota

  • domestic producers are better off

  • domestic employment in protected industry increases

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18

neutral impact from quota

  • the gov’t = no gain or loss

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19

losers from quota

  • domestic consumers worse off

  • domestic income distribution worsens (regressive)

  • increased in efficiency in production

  • foreign producers are both worse and better off

  • global misallocation of resources

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20

quota diagram

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21

winners from production subsidies

  • domestic producers are better off

  • domestic employment in protected industry increases

  • consumers are not affected

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22

losers from production subsidies

  • gov’t budget loses

  • taxpayers are worse off

  • increased inefficiency in production

  • exporting countries are worse off

  • global misallocation of resources

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23

export subsidy diagram

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24

winners from export subsidies

  • producers better off

  • domestic employment increases

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25

losers from export subsidies

  • consumers are worse off

  • gov’t budget loses

  • taxpayers worse off

  • domestic income distribution worsens

  • exporting countries worse off

  • global misallocation of resources

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26

production subsidy diagram

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