Chapter 9 Flashcards
What is a specific tariff?
A specific tariff is levied as a fixed charge for each unit of imported goods
What is an ad valorem tariff?
An ad valorem tariff is levied as a fraction of the value of imported goods
What is an import demand curve?
An import demand curve is the difference between the quantity that the Home consumers demand minus the quantity that the Home producers supply.
What equation represents the import demand (MD) curve?
MD = D - S
What is an export supply curve?
An export supply curve is the difference between the quantity that foreign producers supply minus the quantity that the foreign consumers demand.
XS* = S* - D*
How does a tariff affect the prices at both Home and Foreign economies?
A tariff increases the prices at home and lowers the price at foreign. The volume traded thus declines
How does an introduction of a tariff affect the home economy (including imports)?
The price increase results in higher supply from domestic producers and lower demand from domestic consumers.
So the qty of imports fall with the introduction of a tariff
How does an introduction of a tariff affect the foreign economy (including imports)?
The price decrease results in lower supply from foreign producers and higher demand from foreign consumers.
So the qty of exports from foreign falls.
What is the effective rate of protection?
The effective rate of protection measures how much protection a tariff (or other trade policy) provides.
it represents the change in value that firms in an industry add to the production process when trade policy changes.
What is consumer surplus?
Consumer surplus measures the difference between the maximum amount that consumers are willing to pay and the price that is actually paid.
What is the net effect of a tariff implemented by a large country?
The net effect is ambiguous because the the government gain a surplus of an amount e while consumers lose out on a surplus of (c+d).
refer to the diagram on slide 30 (chapter 9)
What is producer surplus?
Producer surplus measures the difference between the lowest price that the producers would be willing to sell at and the equilibrium price that is realized.
What are specific and ad valorem subsidies?
A specific subsidy is a payment per unit exported
An ad valorem subsidy is a payment as a proportion of the value exported
Is there a terms of trade gain with the implementation of a tariff?
Yes
How does a tariff affect the surplus in the importing country?
A tariff decreases consumer surplus, it increases producer surplus (price increase) nad the government collects a tariff tQt
tQ = (Pt - Pt)*(D2 - S2)
