International Economics Prof. D. Sunitha Raju Introduction to International Economics.
INTERNATIONAL ECONOMICS
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INTERNATIONAL ECONOMICS INTERNATIONAL ECONOMICS Lecture 17 | Lucía Rodríguez | Trade policy exercise Lecture 17 | Lucía Rodríguez | Trade policy exercise
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INTERNATIONAL ECONOMICS. Lecture 17 | Lucía Rodríguez | Trade policy exercise. Trade Policy. In autarky: Q d i = 140 – 20p i et Q s i = 20p i – 20. P i * = 4 Q i * = 60. P i. 7. 4. 1. Good i. 60. 140. Trade Policy. The country enters free-trade:. - PowerPoint PPT Presentation
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INTERNATIONAL ECONOMICSINTERNATIONAL ECONOMICSLecture 17 | Lucía Rodríguez | Trade policy exerciseLecture 17 | Lucía Rodríguez | Trade policy exercise
• In autarky: Qdi= 140 – 20pi et Qs
i = 20pi – 20
Trade PolicyTrade Policy
Pi
Good i
7
140
1
Pi*= 4 Qi
*= 60
4
60
• The country enters free-trade:
Trade PolicyTrade Policy
Pi
Good i
7
140
1
4
60
Piworld= 2 Qi
d= 100 but Qis= 20 Imports = 80
Pw=2
10020
a cb
Consumer surplus has increased by (a + b + c) = [½ * (Qi* ) * (Pmax - Pi
*)] – [½ *
* (Qid) * (Pmax - Pi
world )] = 160
Producer surplus has decreased by (a) = [(Pi*- Pi
world )* (Qi
* )] – [½*(Pi*- Pi
world )*
*(Qi* - Qi
s) = 80
• The government sets an ad-valorem tariff of 50%:
Trade PolicyTrade Policy
Pi
Good i
14060
Pw=2
8040
a cb
Pinew= 3 Qi
dnew= 80 and Qisnew= 40 Imports = 40
Pw *(1*0,5)=3
Prohibitive tariff: 2*(1+t) = 7; t = 250%
Consumer surplus has decreased by 90
Producer surplus has increased by 30
• The government sets a quota on imports equal to 40 units
• Now: Qdi= 140 – 20pi et Qs
i = 20pi – 20 + 40
Trade PolicyTrade Policy
Pi
Good i
140
Pw=2
10020
Pi*= 3
Pinew= 3 Qi
dnew= 80 and Qisnew= 40 Imports = 40
40 80
• Exactly the same effect as the 50% tariff!
• What would you do then, if you were asked to find the tariff-equivalent to a 40 units quota?
