Evaluate the costs and benefits of tariffs, their welfare effect, and winners and losers of tariff policies
a. A tariff is a tax levied when a good is imported, it is a cost paid by the foreign producer.
b. Governments benefit from tariffs as a source of income and as a protection of domestic sectors (though not used as frequently as other nontariff barriers)
c
Discuss what export subsidies and agricultural subsidies are and explain how they affect trade in agriculture in the United States and the European Union.
a. (page 192) An export subsidy is the payment to a firm or individual that ships a good abroad. When the government offers a export subsidy, shippers will export the good up to the point where the domestic price exceeds the foreign priced by the amount o
3. Recognize the effect of voluntary export restraints on both importing and exporting countries, and describe how the welfare effects of VERs compare with tariff and quota policies.
a. A voluntary export restraint (VER) is a variant on an import quota. It is a quota on trade imposed from the exporting country's side instead of the importers. They are generally imposed at the request of the importer and are agreed by the exporter to f
Specific tariffs
taxes levied as a fixed charge for each unit of a good imported (example: $3 per barrel of oil)
Ad valorem tariffs
taxes that are levied as a fraction of the value of the imported goods
Nontariff barriers
protections set in place by governments to protect domestic
Import quotas (183) - limitations on the quantity of imports
Export restraints (183) - limitations on the quantity of exports, usually imposed by the exporting country by the importing country�
(Home) Import demand curve
the excess of what Home consumers demand over what Home producers supply
(Foreign) Export supply curve
the excess of what Foreign producers supply over what Foreign consumers demand
Effective rate of protection
used to measure the real amount of protection afforded to a particular industry by import duties, tariffs, or other trade restrictions
Consumer surplus
measures the amount a consumer gains from a purchase by the difference between the price he actually pays and the price he would be willing to pay
Producer surplus
the amount a producer gains from a sale by the difference between the price they were willing to sell a good for and the actual price the good is sold for
Efficiency loss
the loss to the nation as a whole as a result of a tariff distoring incentives to consume and produce
Terms of trade gain
a gain for the nation as a whole that arises because a tariff lowers foreign export prices; dependant upon the ability of the tariff imposing country to drive down foreign export prices
Production distortion loss
negative effect on the net welfare of a tariff that results from the fact that the tariff leads domestic producers to produce too much of this good
Consumption distortion loss
negative effect on the net welfare of a tariff that results from the fact that a tariff leads consumers to consume too little of the good
Export subsidy
a payment to a firm or individual that ships a good abroad, can be either specific or ad valorem (like tariffs). In an exporting country, consumers are hurt, producers gain, and the government loses because it must expend money on the subsidy.
Quota rents
the profits received by the holders of import licenses; license holders collect the sum of money that would have appeared as government revenue with a tariff as they can buy imports and resell them at a higher price in the domestic market
Voluntary export restraint (VER)
also known as voluntary restraint agreement (VRA), it is a variant on the import quota where a quota on trade is imposed from the exporting country's side instead of the importer's. They are generally imposed at the request of the importer and are agreed
Local content requirement
a regulation that requires some specified fraction of a final good to be produced domestically; this fraction can be in physical units or in value terms