国际贸易双语教案问题答案Pugel_14_SG_AKEY (8)

CHAPTER 8

ANALYSIS OF A TARIFF

Objectives of the Chapter This chapter analyzes the advantages and disadvantages of tariffs. Except for some recognized exceptional cases, there is a rare consensus among economists that freer trade is better than protectionism. As illustrated in this chapter, economic analysis has consistently demonstrated that there are usually net gains from freer trade for the nation as well as for the world. A tariff helps import-substituting producers, and the government collects some tariff revenue (import taxes); however, consumers of the good are unambiguously harmed.

Whether or not a tariff will result in a net gain for the importing country will depend on the size of that country. If the country levying the tariff is small (meaning that its actions cannot affect the world price of the good on which the tariff is levied), then the loss to consumers is larger than the sum of gains to producers and to the government. On the other hand, if the country is large (meaning that, by limiting imports, it can force down the world price of the good), then levying a tariff may result in a net gain for the country. This will depend upon the portion of the government’s revenues that are, in essence, extracted from foreign producers versus the size of the country’s deadweight losses from the tariff. In any case, the world as a whole always loses from the imposition of a tariff. After studying Chapter 8 you should be able to identify 1. the advantages and disadvantages of a tariff.

2. how a tariff lowers the welfare of the world as a whole. 3. ad valorem tariffs versus specific tariffs. 4. the effective rate of protection.

5. how demand-supply analysis can be used to assess the gains and losses of a tariff, using both

graphical and tabular expositions.

Important Concepts Ad valorem tariff: Consumption effect:

A tariff that is set as a percentage of a value of a good when it reaches the importing country.

The welfare loss to consumers in the importing nation that corresponds to their being forced to cut their total purchases of a good as a result of the tariff.

Consumer loss from a tariff that accrues to neither the government nor producers.

The percentage by which the entire set of a nation’s trade barriers raises the industry’s value added per unit of output. (This term is abbreviated as e.r.p.)

Deadweight loss:

Effective rate of protection:

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Nationally optimal tariff:

A tariff set at the rate that maximizes the gains for a large country (at the expense of foreign countries). Technically, the optimal rate, as a fraction of the price paid to foreigners, equals the reciprocal of the elasticity of supply of a country’s imports.

“Small” countries that cannot affect the world price of the goods and services they trade. In these countries, the import supply curve is infinitely elastic.

The cost of shifting to more expensive domestic production from an import-competing sector that is protected by a tariff on foreign goods. A tariff set so high that it reduces imports to zero.

A tariff stipulated as a money amount per physical unit of the import.

An international organization of most of the world’s countries; it oversees governmental policies regarding international trade. The chief purposes of the WTO are to liberalize trade and limit unfair export policies such as subsidies.

Price-taking countries:

Production effect: Prohibitive tariff: Specific tariff:

World Trade Organization:

Warm-up Questions True or False? Explain. 1. T / F 2. T / F 3. T / F 4. T / F 5. T / F

Free trade is always a better policy than a tariff.

An advantage of a specific tariff is that its protective value keeps pace with increases in the price of the imported good.

While a tariff may be nationally optimal, it is not globally optimal. Ad valorem is just another way of saying ad nauseam.

A tariff always results in losses to a country’s consumers in excess of the gains to its producers.

Multiple Choice 1.

The optimal tariff for a small (price-taking) country A. is zero.

B. is a prohibitive tariff.

C. is unambiguously positive.

D. increases as that country’s elasticity of demand increases.

An optimal tariff that yields a net national welfare gain requires that A. the nation be a “price taker.”

B. there be no loss of consumer surplus.

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2.

C. trading partner nations not be injured by the tariff.

D. the nation has monopsony power in the international market.

3.

The imposition of a tariff

A. generates revenue which is paid entirely by foreigners.

B. always increases the domestic price in the exporting country.

C. reduces the welfare of a “small” importing country relative to free trade. D. is always welfare-increasing.

The effective rate of protection of an industry is A. always larger than the optimal tariff.

B. a measure of the jobs gained by the economy imposing a tariff.

C. more or less than the nominal tariff rate, depending on the domestic output’s share in GDP. D. more or less than the nominal tariff rate, depending on the tariffs on inputs. The imposition of an import tariff by a large nation A. increases the nation’s welfare. B. reduces the nation’s welfare.

C. leaves the nation’s welfare unchanged. D. allows for any of the above possibilities.

4.

5.

Problems 1.

Consider a case in which the large country, Leinster, imposes a tariff on Saxon bread. This tariff reduces the volume of bread traded from 80 million loaves to 40 million loaves, and causes the “world” price to fall to 0.23 telephones per loaf of bread.

Figure 8.1

Price of bread (telephones per loaf) SL Price of bread (telephones per loaf) Leinster

Saxony

0.44 a 0.23 b c d

World price

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e f g h i SS World price h DL 40 80 Bread in millions of loaves

40 DS 60 Bread in millions of loaves

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