feenstra第十章课后习题答案(3,4,5,6,7).pdf

Spring 2009 Mine Zeynep Senses International Trade Theory msenses jhu edu Practice Problem Set 11 Instruments of Trade Policy II Questions with next to them will be covered next week Questions 1 2 and 4 will be solved in tutorial this week 1 The U S steel industry is shown below Pw the world steel price equals 20 Suppose the U S imposes a tariff of 10 for each unit of steel sold that lowers the world steel price PT to 15 a According to the information provided above is US a large or a small country b What is the U S domestic price for steel after the tariff is imposed PT c Calculate the change in consumer surplus producer surplus and government revenue after the tariff is imposed d What is the deadweight loss e Does US TOT improve or worsen What is the gain loss associated with the TOT change f What is the overall welfare change in the US after the imposition of the tariff 2 Now suppose instead of the tariff the U S government imposes an import quota on steel so that 4 units are imported a What is the world price and domestic price after the quota is imposed b Calculate change in consumer surplus producer surplus and quota rent c What is the deadweight loss d Assume that the U S government distributes import licenses to Home steel producers for free i Who receives the quota rent ii What is the total change in welfare for the U S as a result of the import quota Quantity 17 21 23 12 PT PT Pw U S Steel Industry e Now assume instead the foreign government imposes a VER Voluntary Export Restraint of the same magnitude as the import quota i Who receives the quota rent now ii What is the change in welfare for the U S a result of the import VER iii Which is better in terms of U S welfare a tariff quota with import licenses distributed to domestic producers or VER iv Is it possible for US to be better off as a result of a VER imposed by a foreign country v Is it possible for US to be worse off as a result of a tariff or a quota with import licenses distributed to domestic producers 3 In order to boost exports of biodiesel the U S government will add a subsidy s to each gallon of exported biodiesel Below are the graphs for the U S market and the World market before the subsidy When the U S adds the subsidy the world price of biodiesel decreases to P a Show how the export supply curve will shift after the imposition of the subsidy What will be home s biodiesel price Also show Home s new export quantity b Show graphically the change in consumer surplus change in producer surplus TOT loss subsidy expenditure and overall change in welfare for the U S c Mark the area that represents gain in the foreign due to its TOT improvement d What is the DWL in the world Show it on the graph e Is it possible for Home welfare to improve as a result of an export subsidy 4 Suppose world import demand and export supply for widgets are XS 210 8P and MD 300 10P A large country imposes an export subsidy of 2 25 on widgets a Calculate the world price and quantity of widgets traded in the world market before the subsidy is imposed b Calculate the world price domestic price and quantity traded after the export subsidy is imposed c Calculate the welfare loss in the world as a result of the export subsidy World market U S market P PW X d True False i Consumer surplus decreases at Home ii Producer surplus increases at Home iii Home TOT worsens iv Consumer surplus increases abroad v Producer surplus decreases abroad e Now suppose the import demand facing this country is P 5 i Is this country small or large ii Suppose the same export subsidy is imposed 1 Calculate the world price domestic price and quantity traded after the export subsidy is imposed 2 Calculate the welfare loss in the world as a result of the export subsidy f In which case the DWL is bigger Why 5 Feenstra and Taylor Chapter 10 Questions 3 4 5 6 and 7 the questions with will be covered next week Answers 1 a Large country imposition of the tariff changed the world price b PT PT 10 25 c Change in consumer surplus 21 5 2 5 2 110 Change in producer surplus 12 5 17 12 5 2 72 5 Tariff revenue 21 17 10 40 d DWL 25 20 17 12 2 25 20 23 21 2 17 5 e Improves price of the import good decreases TOT gain 21 17 5 20 f Overall change in welfare 20 17 5 2 5 welfare improves 2 a World price 15 Domestic price 25 exactly like the tariff b The answer is exactly same as 1 c Change in consumer surplus 21 5 2 5 2 110 Change in producer surplus 12 5 17 12 5 2 72 5 Quota rent 21 17 10 40 c DWL 25 20 17 12 2 25 20 23 21 2 17 5 same as 1d d i Home producers get the entire quota rent of 40 ii Change in welfare is 20 17 5 2 5 welfare improves Note that the welfare effect is exactly same as the tariff e i Foreigners get all the quota rent of 40 ii Change in welfare is loss in quota rent 40 iii Compare change in welfare in each case In terms of welfare VER is the worse for US Tariff and quota with import licenses distributed to domestic producers are equivalent in terms of welfare iv No Welfare change is equal to deadweight loss and loss of quota rent v Yes If the TOT gain is smaller than the DWL US will loose even if it s a large country If US were a small country it will definitely loose from both of these policies since there will not be any TOT improvement to offset the DWL 3 a New export supply curve X Home s price P s Home s exports S2 S2 D2 b Change in CS a b Change in PS a b c Subsidy expenditure e b c d Overall change in welfare e b d TOT loss e DWL b d c TOT gain e note that e e d DWL in the world f b d e e e No Home will suffer both from an inefficiency cost DWL and a loss due to worsening of its TOT 4 a Pw 5 Qw 250 find the intersection of XS and MD b With the export subsidy XS 25 2 8 210 8 Q P Solve it with the import demand to get Q 260 Pw 4 Pd 4 2 25 6 25 c DWL 260 250 2 25 2 11 25 d i and ii are true because domestic price increases as a result of the subsidy iii is true because world price for Home s export good decreases iv and v are true because the world price decreases e i Small since its facing a horizontal MD curve no change in world price ii 1 Pw 5 Pd 5 2 25 7 25 New Q 525 2 8 210 8 Q Q 268 2 DWL 268 250 2 25 2 20 25 f e d c b a X X P s World market U S market P PW D2 S2 e X2 f For the small country the DWL is bigger Since there is no impact on the world price the domestic price rises more than the large economy case which creates even bigger incentive to export more Remember source of the deadweight loss too much of this good is exported 5 3 a At the free trade price of 100 per ton Home will export 40 20 or 20 tons of wheat At the export subsidy price of 140 per ton Home will export 50 10 or 40 tons of wheat b Welfare effects Change in Consumer surplus 40 x10 1 2 40 x10 600 Change in Producer surplus 40 40 50 2 1800 Change in Government revenue 40 x40 1600 c Total net effect of the export subsidy on Home welfare is 1800 2200 400 4 a Since Home is large expansion of its exports results in a decline in world price b Welfare effects Change in Consumer surplus 120 100 12 20 2 320 Change in Producer surplus 20 40 48 2 880 Change in Government revenue 48 12 40 1440 c Total net effect of the export subsidy on Home welfare is 880 1760 880 In addition to the DWL large country also suffers from a TOT deterioration 5 a Consumer price is still 100 producers receive 140 So quantity demanded is 20 and quantity supplied is 50 Exports 50 20 30 b Welfare effects Change in Consumer surplus 0 Change in Producer surplus 40 40 50 2 1800 Change in Government revenue 50 40 2000 c Total net effect of the production subsidy on Home welfare is 1800 2000 200 DWL is much smaller with the production subsidy From the perspective of producers nothing has changed still producer surplus of 1800 Consumers are better off with the production subsidy no consumer surpl