Rest Of Trade Policy Flashcards Preview

EC336 - TRADE > Rest Of Trade Policy > Flashcards

Flashcards in Rest Of Trade Policy Deck (51)
Loading flashcards...
1

From whose perspective do we analyse an export subsidy from?

Exporting country

2

Are an export subsidy’s effect symmetric to tariff??

NO

3

2 types of export subsidies

1. specific/per unit = payment per unit exported.
2. ad valorem = payment as % of value of exported.

4

impact of export subsidy on price in exporting country and why?

RAISES the price of the good since domestic firms more willing to export --> excess demand domestically = price rises.

5

impact of export subsidy on price in foreign countries and why?

LOWERS the world price of the good since domestic firms more willing to export --> excess supply in global market = price falls.

6

Under what condition does a subsidy affect world price?

LARGE country = able to influence world supply and demand and therefore price.

7

impact of export subsidy on TOT

WORSE TOT for exporting country since world Px falls.

8

Subsidy equilibrium and why?

Ps - Ps* = s
No arbitrage condition: domestic producers compensated to still sell at home. Indifferent between exporting and selling domestically.

9

How do Ps, Ps* and Pw compare?

Ps > Pw
Ps* < Pw

10

Impact of export subsidy on domestic consumers

Internal Ps rises = demand falls and loss of CS

11

Impact of export subsidy on domestic producers

Internal Ps rises = domestic supply rises and increase in of PS

12

Impact of subsidy on government

Cost of subsidy = s * quantity of exports.
Remember s = Ps - Ps*

13

Impact of subsidy on trade

Domestic producers have greater incentive to export + domestic demand falls = XS rises.

14

Effect of subsidy on welfare

UNAMBIGUOUSLY -VE: efficiency losses + TOT loss.

15

Impact of subsidy on TOT

Ps* = world price of exports FALLS = TOT LOSS.

16

CAP was created when and by how many countries?

1962 by EU's 6 founding countries

17

2 things CAP does

1. fixes high domestic prices for agricultural products.
2. Subsidises exports to dispose of excess production.

18

Direct cost of CAP to EU

$50BN = 42% of budget

19

% of GDP agriculture is in EU

2%

20

How do support, autarky and free trade prices compare under CAP?

Support price > autarky price > world price.

21

Under free trade, would EU be exporter or importer of agriculture?

Importer: D > S at world free trade price.

22

How does fair trade affect prices? How does this differ to subsidy?

Pushes up prices above free trade price.
But not just to government payment - voluntarily paid by consumers in developed countries.

23

GE effect of fair trade

Fair trade producers increase supply = lowers world price . Oversupply means non fair trade producers lose out.

24

2 -VE of fair-trade in LR

1. doesn't help developing countries diversify
2. Supermarkets try to skim off consumer's WTP higher prices through feel good factor.

25

Import quota =

a restriction on the QUANTITY of a good that may be imported.

26

How is a quota enforced?

LICENSES: given to domestic firms or foreign governments as permits to import/export.

27

What is a BINDING import quota?

One that affects the prevailing demand and supply.

28

How does a quota affect domestic price and why?

Restrict imports means domestic demand > domestic supply + imports = excess demand pushes up price of imports.

29

What are quota rents? who do they go to?

Revenue from being able to sell imports at a higher price = goes to license holders (domestic firms / foreign governments).

30

Impact of quota on domestic consumers

Higher internal price of imports = lower demand and CS