Tariffs and Non-tariffs
Question 1
Tariffs refer to the tax levied on products when they cross national boundaries, while quotas refer to the limit of goods that can be imported. The difference is that tariffs restrict through prices while quotas restrict through quantity.
Question 2
When a small economy engages in free trade, the world price (pw) becomes the only relevant price. Thus, the domestic price conforms to the world price. As a result, no buyer would want to sell their products less than Pw since they can sell more in international markets, and no buyer would buy more than Pw since they can purchase the goods in world markets.
Question 3
Consumer surplus
Question 4
No. A small economy does not affect the world price in the markets it operates. It is small enough compared to its trading partners for its policies to have an impact on world prices.
Question 5
A deadweight loss will result from loss to the domestic economy from wasted units used to produce at the increasing costs and decrease in consumption as a result of increased prices.
Question 6
Yes. A large economy affects the word price. Since the country has a large economy size, a large country tariff will not only reduce the number of goods demanded but also it will result in a decrease in the world price of the commodity.
Question 7
The total surplus will shift from domestic consumers to domestic producers
Question 8
Imposing tariffs by the large economy will result in improvement in terms of trade. The government will see increased revenues as imports get into the domestic market. Additionally, the increase in prices increases the firms’ output, creates unemployment, and raises profits.
Question 9
For a large economy, the optimal tariff is above zero (positive)
Question 10
The import tariff is equivalent to the sum of the producer and consumer effects and also government revenue effects.
A quota rent refers to the economic rent received by the owner of the imported goods, which is subject to the quota.
Question 11
Imposing an equivalent import quota rather than an import tariff transforms the national welfare through revenues and consumer surplus to producer surplus and results in a domestic monopoly.
Question 12
Dumping is a form of international price discrimination. It occurs when foreign buyers are charged at a lower price than domestic buyers for the same product or when a foreigner buys products at a price less than the cost of production.
There are three types, sporadic, predatory, and persistent.
Question 13
Consider to countries with a less elastic submarket while the other has a more elastic submarket. A price –discriminating firm will maximize profits by equating marginal revenue in each submarket with marginal cost. The firm will charge a higher price in the less elastic demand market and a lower price in the more elastic demand submarket. Successful dumping leads to additional revenue and profits from the frim that would not have been realized in the absence of dumping.