Chapter 5

Question 1

What are nontariff trade barriers (NTBs)?

Answer 1

• NTBs are trade restrictions that do not involve tariffs
  Examples: quotas, subsidies, content requirements, dumping laws
• NTBs can distort trade and result in inefficiencies

Question 2

Explain what an absolute import quota is, and its economic effects:

Answer 2

• Sets a physical limit on imports over a time period
• Reduces supply, raises prices, and limits consumer choice

Economic effects
-Price increase, decline in consumer surplus, windfall profits to license holders (quota rents)
-DWL losses:
Protective effect, Consumption effect

Question 3

What are the Quota License Allocation Methods?

Answer 3

• Pro rata: importers receive shares proportionally
• Auction: Licenses sold to the highest bidder
• Methods affect who gains quota rents

Question 4

What are the system and administration methods of a Tariff-Rate Quota (TRQ)?

Answer 4

Two-tier system:
- Within-quota imports: lower tariff
- Over-quota imports: higher tariff
Administration methods:
- First-come, first-serve
- Proportional allocation
- Historical share or auction

Question 5

What are export quotas and voluntary export restraints (VERs)? and their effects

Answer 5

• Restrictions by exporting countries to limit exports, often negotiated under political pressure
  Effects:
• Higher U.S. prices
• Profits captured by foreign producers