Exam 5: Nontariff Trade Barriers

Figure 5.1 illustrates the steel market for Mexico, assumed to be a "small" country that is unable to affect the world price. Suppose the world price of steel is given and constant at $200 per ton. Now suppose the Mexican steel industry is able to obtain trade protection. Figure 5.1. Alternative Nontariff Trade Barriers Levied by a "Small" Country -Referring to Figure 5.1, suppose the Mexican government imposes an import quota equal to 2 tons of steel. If foreign exporters behave as monopoly sellers, and Mexican importers behave as competitive buyers, the overall welfare loss of the quota to Mexico equals:

Figure 5.1 illustrates the steel market for Mexico, assumed to be a "small" country that is unable to affect the world price. Suppose the world price of steel is given and constant at $200 per ton. Now suppose the Mexican steel industry is able to obtain trade protection. Figure 5.1. Alternative Nontariff Trade Barriers Levied by a "Small" Country -Consider Figure 5.1. Suppose instead that the Mexican government provides a subsidy of $200 per ton to its steel producers, as indicated by the supply schedule S_{M (with subsidy)}. As a result of the subsidy, the welfare loss to Mexico due to inefficient domestic production equals:

Today most industrial countries protect their industries via global import quotas rather than selective import quotas.

Figure 5.4 illustrates the calculator market for Venezuela, assumed to be a "small" country that is unable to affect the world price. S_Venezuela is the domestic supply schedule and D_Venezuela is the domestic demand schedule. Figure 5.4. Venezuelan Calculator Market -Consider Figure 5.4. Suppose the rest of the world supplies calculators to Venezuela at a price of $4 each. With free trade, Venezuelan imports total:

To the extent that subsidies granted to exporting firms reduce the foreign price of their goods, the subsidizing country's terms of trade worsen.

A firm granting lifetime employment to its workers has the incentive to engage in international dumping during periods of business recession and excess production capacity.

An effective Buy American law would tend to increase U.S. producer surplus at the expense of U.S. consumer surplus.

Figure 5.6 Domestice Supply and demand for Wine - US -Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the US demands at $8 per bottle. IF the US imposes a quota of 15 bottles of wine what will happen to consumer surplus?

During periods of growing demand, a tariff more effectively restricts the volume of imports than an equivalent import quota.

A producer successfully practicing international dumping would charge:

Empirical studies show that because voluntary export quotas are typically administered by exporting countries, $\underline { \text { foreign } }$ exporters tend to:

When increases in nonrestraint supply offset part of the cutback in shipments that occur under an export quota, the overall inefficiency loss for the importing country is less than that which would have occurred in the absence of nonrestrained exports.

Figure 5.1 illustrates the steel market for Mexico, assumed to be a "small" country that is unable to affect the world price. Suppose the world price of steel is given and constant at $200 per ton. Now suppose the Mexican steel industry is able to obtain trade protection. Figure 5.1. Alternative Nontariff Trade Barriers Levied by a "Small" Country -Consider Figure 5.1. Suppose the rest of the world voluntarily agrees to reduce steel shipments to Mexico vis-a-vis an export quota equal to 2 tons. Assuming Mexican importers behave as competitive buyers while foreign exporters behave as monopoly sellers, the $\underline { \text { overall } }$ welfare loss of the quota to Mexico is:

Figure 5.6 Domestice Supply and demand for Wine - US -Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the US demands at $8 per bottle. If the US imposes a quota of 15 bottles of wine , how much revenue will the US government collect?

Figure 5.5 illustrates the television market for Mexico, assumed to be a small country that is unable to affect the world price. S_Mexico is the domestic supply schedule and D_Mexico is the domestic demand schedule. Suppose that Japan can supply televisions to Mexico at a price of $100 per set. Figure 5.5. Mexico's Television Market -Consider Figure 5.5. With free trade, Mexicans produce 4 TVs, consume 24 TVs, and import 20 TVs.

Figure 5.6 Domestice Supply and demand for Wine - US -Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the US demands at $8 per bottle. How much will the US produce and import in these circumstances?

Voluntary export restraint agreements typically apply to all of the world's exporting nations rather than only the most important exporting nations.

Figure 5.1 illustrates the steel market for Mexico, assumed to be a "small" country that is unable to affect the world price. Suppose the world price of steel is given and constant at $200 per ton. Now suppose the Mexican steel industry is able to obtain trade protection. Figure 5.1. Alternative Nontariff Trade Barriers Levied by a "Small" Country -Consider Figure 5.1. With free trade, the quantity of steel imported by Mexico equals:

A subsidy granted to import-competing producers is intended to lead to increased domestic production and decreased imports for the home country.

Figure 5.5 illustrates the television market for Mexico, assumed to be a small country that is unable to affect the world price. S_Mexico is the domestic supply schedule and D_Mexico is the domestic demand schedule. Suppose that Japan can supply televisions to Mexico at a price of $100 per set. Figure 5.5. Mexico's Television Market -Consider Figure 5.5. Suppose that the governments of Mexico and Japan negotiate a voluntary export agreement in which Japanese TV exports to Mexico are limited to 8 units. Under the quota, the price of TVs in Mexico equals $250 while Mexicans produce 10 TVs and purchase 18 TVs.