Exam 5: Nontariff Trade Barriers

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.

Under U.S.antidumping law,an antidumping duty can be levied when the U.S.Commerce Department determines that a foreign product is being sold in the United States at less than fair value and the U.S.International Trade Commission determines that the dumped product is causing economic harm to domestic producers.

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.

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.

Figure 5.5 illustrates the television market for Mexico, assumed to be a small country that is unable to affect the world price. SM???c? is the domestic supply schedule and DM???c? 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.Compared to free trade,the Japanese export quota leads to an increase in Mexican consumer surplus of $3150.

Figure 5.5 illustrates the television market for Mexico, assumed to be a small country that is unable to affect the world price. SM???c? is the domestic supply schedule and DM???c? 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.Compared to free trade,the Japanese export quota leads to an increase in Mexican producer surplus of $1050.

Figure 5.4 illustrates the calculator market for Venezuela, assumed to be a "small" country that is unable to affect the world price. SV?n? ??l? is the domestic supply schedule and DV?n? ??l? 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:

If the home country's government grants a subsidy on a domestically produced good,domestic producers tend to:

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

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.