《国际贸易》芬斯特拉人大练习题答案.pdf

Import Tariffs and Quotas under Perfect Competition 1.The following questions refer to Side Bar: Key Provisions of the GATT. a.If the United States applies a tariff to a particular product (e.g., steel) imported from one country, what is the implication for its steel tariffs applied to all other countries according to the “most-favored-nation” principle? Answer: The MFN principle levels the playing fi eld among countries with re- gard to any “advantage, favour, privilege or immunity granted by any contracting party to any product. . .” Thus, if the United States removed a tariff on steel im- ports from a particular country, it would necessarily have to remove it for the other GATT countries. Thus MFN treatment would prevent the application of a steel tariff to certain countries whereas others had lower or no tariffs. Con- versely, a uniform tariff on steel imports from all countries alike would not vio- late the MFN principle. b.Is Article XXIV an exception to most-favored-nation treatment? Explain why or why not. Answer: Article XXIV allows for the creation of customs unions and free-trade areas. By defi nition, these contradict the MFN principle: Trade barriers are low- ered within the area or union without a corresponding decrease in barriers to outside countries. c.Under the GATT articles, instead of a tariff, can a country impose a quota (quan- titative restriction) on the number of goods imported? What has been one ex- ception to this rule in practice? Answer: Article XI expressly prohibits the application of quantitative restrictions by any GATT country to any product. The MFA was a notable exception in practice; it allowed Canada, the United States, and Europe to restrict the amount of textiles and apparel products that were imported from garment-producing countries. S-69 8 2.Consider a small country applying a tariff, t, to imports of a good like that repre- sented in Figure 8-5. a.Suppose that the country decides to reduce its tariff to t?. Redraw the graphs for the Home and import markets and illustrate this change. What happens to the quantity of goods produced at Home and their price? What happens to the quan- tity of imports? Answer: The reduction of the tariff, and corresponding decrease in domestic price in the small country, leads to a reduction in domestic production (to S3) and an increase in domestic quantity demanded (to D3). The result is an increase in imports (to M3 ). See the following fi gure. b.Are there gains or losses to domestic consumer surplus due to the reduction in tariff? Are there gains or losses to domestic producer surplus due to the reduc- tion in tariff? How is government revenue affected by the policy change? Illus- trate these on your graphs. Answer: Consumer surplus increases because consumers now buy a greater quantity of products at a lower price. Domestic producer surplus, on the other hand, decreases because producers sell a smaller quantity of products at a lower price. Government revenue changes from the rectangle S2D2PWPW? t to the rectangle S3D3PWPW? t?. Notice that the area of the rectangle does not neces- sarily decrease when the tariff is lowered because, although the tax per import is less, the amount of imports has increased. c.What is the overall gain or loss in welfare due to the policy change? Answer: The overall welfare gain from the reduction in the tariff is illustrated by the decrease in total deadweight loss. On our graphs this is the reduction in the size of the striped triangles; after the reduction in the tariff, total deadweight loss is represented by the smaller shaded triangles. 3.Consider a large country applying a tariff, t, to imports of a good like that represented in Figure 8-7. a.How does the export supply curve in panel (b) compare with that in the small- country case? Explain why these are different. Answer: The export supply curve is upward-sloping in the large-country case (it was horizontal in the small-country case). In the small-country case, a hori- zontal export supply curve means that the supply of exports from the rest of the world is infi nitely elastic. This corresponds to the price taking assumption in per- fect competition. In contrast, an upward-sloping export supply curve means that the price of exports from the rest of the world responds when the large country changes its import demand. For instance, if the large-country importer applies a S-70Solutions Chapter 8 Import Tariffs and Quotas under Perfect Competition Quantity S D M S1S3S2D2D3D1M2M3M1 X* X*+ tPW + t PW + t? PW (a) Domestic market(b) Import market Imports PricePrice tariff that decreases its demand for imports, the price charged by foreign ex- porters falls. b.Explain how the tariff affects the price paid by consumers in the importing coun- try, and the price received by producers in the exporting country. Use graphs to illustrate how the prices are affected if (i) the export supply curve is very elastic (fl at), or (ii) the export supply curve is inelastic (steep). Answer: Refer to Figure 8-5: In the small-country case (fl at export supply curve), a tariff increases the amount that consumers pay by exactly the amount of the tariff and foreign exporters are paid the original world price, P*; the dif- ference is collected by the domestic government as tax revenue. Refer to Figure 8-7: With an upward-sloping export supply curve (in the large-country case) for- eign exporters reduce their price due to a tariff; that is, foreign exporters receive less than they did prior to the tariff. Domestic consumers pay more than before, but by less than the full amount of the tariff. Again, the difference between what consumers pay and what Foreign exporters receive is the amount of the tariff, t, collected by the domestic government. In the large-country case, the incidence of the tariff is shared by domestic consumers and foreign producers. Moreover, a steeper foreign export supply curve implies that foreign exporters absorb more of the price increase due to the tariff. 4.Consider a large country applying a tariff, t, to imports of a good like that represented in Figure 8-7. How does the size of the terms-of-trade gain compare with the size of the deadweight loss when (i) the tariff is very small, and (ii) the tariff is very large? Use graphs to illustrate your answer. Answer: Refer to panel (b) of Figure 8-7: As the size of the tariff increases, the ex- port supply curve shifts upward by more, M2decreases by more (relative to M1), and the size of the triangle with area b ? d increases relative to rectangle e. That is, con- sumer deadweight losses get larger relative to terms-of-trade gains due to the tariff. We can interpret this as meaning that for small tariffs the welfare gains from terms- of-trade improvements outweigh consumer deadweight losses, but the opposite is true for tariffs that are suffi ciently large. 5.Consider the following scenarios: a.If the foreign export supply is perfectly elastic, what is the optimal tariff Home should apply to increase welfare? Explain. Answer: This is the small-country case. Because the incidence of the tariff is shouldered completely by consumers and there is no terms-of-trade gain to ap- plying a tariff, the optimal tariff is zero. b.If the foreign export supply is less than perfectly elastic, what is the formula for the optimal tariff Home should apply to increase welfare? Answer: This is the large-country case. The optimal tariff is determined as: t ? E 1 X * ?, where EX * is the Foreign export supply elasticity. c.What happens to Home welfare if it applies a tariff higher than the optimal tariff? Answer: Refer to Figure 8-8: For a tariff higher than the optimal tariff, welfare declines because deadweight losses increasingly outweigh terms-of-trade gains. For a suffi ciently high tariff, welfare can go as low as the autarky level. 6.Rank the following in ascending order of Home welfare and justify your answers. If two items are equivalent, indicate this accordingly. a.Tariff of t in a small country corresponding to the quantity of imports M. Solutions Chapter 8 Import Tariffs and Quotas under Perfect CompetitionS-71 b.Tariff of t in a large country corresponding to the same quantity of imports M. c.Tariff of t? in a large country corresponding to the quantity of imports M? ? M. Answer: a ? c ? b. For the same quantity of imports, M, Home welfare is greater in the large-country case relative to the small-country case because (as- suming an optimal tariff) the terms-of-trade gain partially offsets the deadweight losses due to the tariff; thus, a ? b. A larger quantity of imports implies that t? ? t. Therefore, in the large-country case with optimal tariff t, the welfare asso- ciated with a tariff of t? is somewhere in between the small-country case and the large-country case; thus, a ? c ? b. 7.Rank the following in ascending order of Home welfare and justify your answers. If two items are equivalent, indicate this accordingly. a.Tariff of t in a small country corresponding to the quantity of imports M. b.Quota with the same imports M in a small country, with quota licenses distrib- uted to Home fi rms and no rent seeking. c. Quota of M in a small country with quota licenses auctioned to Home fi rms. d. Quota of M in a small country with the quota given to the exporting fi rms. e.Quota of M in a small country with quota licenses distributed to rent-seeking Home fi rms. Answer: d ? e ? a ? b ? c. A tariff t corresponding to imports M, and a quota on M units of import corresponding to tariff t are equivalent in terms of welfare so long as proceeds from quota rents remain in the Home country and are not squandered by rent-seeking activities: a ? b ? c. When quota rents are either given away to Foreign fi rms or are squandered completely by Home fi rms seeking access to rents, Home welfare diminishes by an equal amount (the amount of the quota rents): d ? e ? a ? b ? c. 8.Why did President George W. Bush suspend the U.S. tariffs on steel seventeen months ahead of schedule? Answer: The threat of a tariff war from the European Union, Brazil, China, Japan, South Korea, New Zealand, Norway, and Switzerland in response to the U.S. steel tariff led President Bush to suspend the import tax earlier than the initial three-year schedule. 9.What provision of U.S. trade law was used by President Barack Obama to apply a tariff on tires imported from China? Does this provision make it easier or harder to apply a tariff than Section 201? Answer: President Obama used Section 421 to apply the tariff on imports of tires from China. Section 421, which is a China-specific safeguard provision, is easier to apply be- cause it requires a lower level of injury to a U.S. industry. To apply safeguard tariffs under section 421 the U.S. International Trade Commission (ITC) need only find that rising imports from China are a “significant cause of material injury, or threat of mate- rial injury, to the domestic industry.” To impose a tariff under Section 201, the U.S. ITC must find that increased imports are the most important cause of material injury. 10.No U.S. tire producers joined in the request for the tariff on tires in 2009. Rather, the petition for a tariff on tires imported from China was brought by the United Steelworkers of American, the union who represents workers in the tire industry. Why did major tire manufactures operating in the United States, like Goodyear, Michelin, Cooper, and Bridgestone, not support the tariff? Answer: Tire manufactures operating in the United States did not support the tariff because many of them already manufacture tires in China. Of the ten manufactures operating in the United States, seven also produce tires in China, so a tariff on tires imported from China would make it more costly for them to produce in China. S-72Solutions Chapter 8 Import Tariffs and Quotas under Perfect Competition 11.Suppose Home is a small country. Use the graphs below to answer the questions. a.Calculate Home consumer surplus and producer surplus in the absence of trade. Answer: Total surplus in the absence of trade is 35. Consumer surplus without tariff:Producer surplus without tariff: CS ? 1 2 ? 5 ? (18 ? 9)PS ? 1 2 ? 5 ? (9 ? 4) CS ? 22.5PS ? 12.5 b.Now suppose that Home engages in trade and faces the world price, P*? $6. Determine the consumer and producer surplus under free trade. Does Home benefi t from trade? Explain. Answer: Home is better off with trade because total surplus increases by 15 (i.e., total surplus under trade is 50). Consumer surplus under free trade:Producer surplus under free trade: CS ? 1 2 ? 8 ? (18 ? 6)PS ? 1 2 ? 2 ? (6 ? 4) CS ? 48PS ? 2 c.Concerned about the welfare of the local producers, the Home government im- poses a tariff in the amount of $2 (i.e., t ? $2). Determine the net effect of the tariff on the Home economy. Answer: The net effect on Home welfare is ?8. Consumer surplus with tariff:Producer surplus with tariff: CS ? 1 2 ? 6 ? (18 ? 8)PS ? 1 2 ? 4 ? (8 ? 4) CS ? 30PS ? 8 Government with tariff: Government ? (6 ? 4) ? (8 ? 6) Government ? 4 Fall in consumer surplus:?18 Rise in producer surplus:?6 Rise in government revenue:?4 Net effect on Home welfare:?8 Solutions Chapter 8 Import Tariffs and Quotas under Perfect CompetitionS-73 Quantity S D M 2624 4 6 8 9 18 568 X* X*+ t (a) Home market(b) Import market Import PricePrice 12.Refer to the graphs in problem 11. Suppose that instead of a tariff, Home applies an import quota limiting the amount foreign can sell to 2 units. a.Determine the net effect of import quota on the Home economy if the quota licenses are allocated to local producers. Answer: An import quota of 2 units has the same net effect on Home welfare as an equivalent tariff of $2 when the quota licenses are allocated to local pro- ducers as long as the fi rms do not participate in rent-seeking activities. Fall in consumer surplus:?18 Rise in producer surplus:?6 Quota rents earned at Home:?4 Net effect on Home welfare:?8 b.Calculate the net effect of the import quota on Homes welfare if the quota rents are earned by foreign exporters. Answer: Fall in consumer surplus:?18 Rise in producer surplus:?6 Net effect on Home welfare:?12 c.How do your answers to parts (a) and (b) compare with part (c) of problem 11? Answer: With an import quota of 2 units the net effect on Home welfare is equivalent to that of a tariff of $2 (i.e., the net effect on Home welfare is ?8) when the quota licenses are allocated to local producers. If the quota rents are earned by foreign exporters, Home welfare falls further so that the net effect is ?12. 13.Consider a small country applying a tariff, t, such as in Figure 8-5. Instead of a tar- iff on all units imported, however, we will suppose that the tariff applies only to im- ports in excess of some quota amount M? (which is less than the total imports). This is called a “tariff-rate quota” (TRQ) and is commonly used on agricultural goods. a.Redraw Figure 8-5, introducing the quota amount M?. Remember that the tar- iff applies only to imports in excess of this amount. With this in mind, what is the rectangle of tariff revenue collected? What is the rectangle of quota rents? Ex- plain briefl y what quota rents mean in this scenario. Answer: Refer to the following fi gure: For the small-country tariff case, tariff revenue equals the tariff per import multiplied by the amount of imports. In panel (b), this is represented by the rectangle a ? b. With the TRQ, only M?M2 S-74Solutions Chapter 8 Import Tariffs and Quotas under Perfect Competition PricePrice QuantityImport6 MD S X X* 286542 4 6 8 9 18 (a) Home market(b) Import market imports are subject to the tariff. Therefore the government collects t?M?M2? b. Because the new domestic price is P*? t, someone has the ability to buy (or produce) abroad for P*and sell domestically for P*? t.This differential is called quota rents and can be represented by the amount of the quota multiplied by the difference between domestic and world price: t?M? ? a. b.How does the use of a TRQ, rather than a tariff at the same rate, affect Home welfare? How does the TRQ, as compared with a tariff at the same rate, affect Foreign welfare? Does it depend on who gets the quota rents? Answer: If the quota rents stay at Home and are not squandered by rent seek- ers (that is, they are collected by the government through auction or given to Home fi rms), then Homes welfare is the same as under a tariff. However, if quota rents are given to the foreign country, then Homes welfare is less than un- der a tariff. By analogous reasoning, if quota rents stay at Home, then Foreigns welfare is unchanged, whereas if quota rents are sent abroad, then Foreigns wel- fare is higher. c.Based on your answer to part (b), why do you think TRQs are used quite often? Answer: Given that the Foreign countrys welfare decreases with the addition of a tariff on its exports to Home (i.e., it sells fewer goods to Home at the same price or less than before), Home can make the situation more politically palat- able to Foreign by implementing a TRQ and giving away the quota rents to for- eign fi rms. 14.Consider the following hypothetical information pertaining to a countrys imports, consumption, and production of T-shirts following the removal of the MFA quota: Solutions Chapter 8 Import Tariffs and Quotas under Perfect CompetitionS-75 Quantity S D M ba S1S2D2D1M2M?M1 X* X* + t P* + t P* (a) Domestic market(b) Import market Imports PricePrice Without MFA With MFA(Free Trade) World price ($/shirt)$2.00$2.00 Domestic price ($/shirt)$2.50$2.00 Domestic consumption (million shirts/year)100125 Domestic production (million shirts/year)7550 Imports (million shirts/year)2575 MFA, multifi bre arrangement. a.Graph the effects of the quota removal on domestic consumption and production. Answer: With the quota removal, domestic consumption increases from 100 units to 125 units, whereas producti