Exam 5: Nontariff Trade Barriers

An import quota tends to reduce the overall welfare of the importing nation by an amount equal to the protective effect, consumption effect, and the portion of the revenue effect that is captured by the domestic government.

If the Australian government imposes a domestic content requirement of 75 percent on autos, at least 25 percent of an auto's value must be produced in a foreign country if that auto is to be sold in Australia.

Local content laws stipulate the maximum percentage of a product's total value that must be produced domestically for that product to be sold domestically.

An orderly marketing agreement is a market-sharing pact negotiated by trading nations, and its effect is to moderate the intensity of international competition.

Which of the following refers to a market-sharing pact negotiated by trading partners to moderate the intensity of international competition?

A subsidy granted to import-competing producers reduces overall domestic welfare by the same amount as would a tariff or quota that restricts imports by the same amount.

Export subsidies levied by foreign governments on products in which the United States has a comparative disadvantage:

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 wine will US consumers demand, how much wine will US producers produce and how much wine will be imported?

Local content laws are consistent with the principle of import substitution, in which domestic production replaces the importation of goods from abroad.

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. Assume the Venezuelan government grants its manufacturers a production subsidy of $4 per calculator. After the subsidy is granted, Venezuelan imports total:

Suppose the government grants a subsidy to domestic producers of an import-competing good. The subsidy tends to result in deadweight losses for the domestic economy in the form of the:

If a tariff and an import quota lead to equivalent increases in the domestic price of steel, then:

A firm that faces problems of falling sales and excess productive capacity might resort to international dumping if it:

According to the U.S. Buy American Act, federal government agencies cannot purchase materials and products from U.S. suppliers if their prices are higher than those of foreign competitors.

For the United States, the Buy American Act has tended to increase consumer surplus for U.S. buyers of protected merchandise.

Figure 5.3 illustrates the apple market for Sweden, assumed to be a "small" country that is unable to affect the world price. S_Sweden is the domestic supply and D_Sweden is the domestic demand. S_Sweden+Quota is Sweden's supply schedule with an import quota. Figure 5.3. Sweden's Apple Market -Consider Figure 5.3. Suppose the rest of the world can supply apples to Sweden at a price of $0.60 per pound. With free trade, Sweden produces ____ pounds of apples and imports ____ pounds of apples.

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. The production subsidy results in an overall welfare loss for Venezuela totaling:

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 monopoly buyers while foreign exporters behave as competitive sellers, the overall welfare loss of the quota to Mexico is:

International dumping occurs when foreign buyers are charged higher prices than domestic buyers for an identical product, after allowing for transportation costs and tariff duties.

Figure 5.3 illustrates the apple market for Sweden, assumed to be a "small" country that is unable to affect the world price. S_Sweden is the domestic supply and D_Sweden is the domestic demand. S_Sweden+Quota is Sweden's supply schedule with an import quota. Figure 5.3. Sweden's Apple Market -Consider Figure 5.3. If the Swedish government auctions import licenses to the highest bidder in a competitive market, it could realize revenues of up to: