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 -Consider Figure 5.1. With free trade, Mexico's consumer surplus and producer surplus respectively equal:

With a tariff on auto imports, increased domestic demand leads to a fall in the number of autos imported and a rise in the number of autos produced domestically.

Describe some of the differences between tariffs and quotas?

Import tariffs and import quotas yield identical protection effects, consumption effects, redistribution effects, and revenue effects.

Compared to an import quota, an equivalent tariff may provide a $\underline { \text { less } }$ certain amount of protection for home producers since:

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. Assuming that the revenue effect of the export quota accrues to Japanese firms, the overall welfare loss to Mexico equals $2100 as a result of the quota.

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 increase in Venezuelan producer surplus under the production subsidy totals:

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, Mexican producer surplus equals $2450 and Mexican consumer surplus equals $200.

A subsidy granted to import-competing producers results in a welfare loss to the economy by an amount equal to the protective effect plus the consumption effect.

Because export subsidies tend to result in domestic exporters charging $\underline { \text { lower } }$ prices on their goods sold overseas, the home country's:

The sugar import quotas of the U.S. government have tended to increase the market price of sugar, thus reducing the costs to the government of maintaining sugar price supports for domestic growers.

Suppose the government grants a subsidy to its export firms that permits them to charge $\underline { \text { lower } }$ prices on goods sold abroad. The export revenue of these firms would $\underline { \text { rise } }$ if the foreign demand is:

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 Mexican government provides a subsidy of $200 per ton to its steel producers, as indicated by the supply schedule S_{M (with subsidy)}. The quantity of imports equals: