MGEC62H3 Chapter Notes - Chapter 8: Voluntary Export Restraints, Ad Valorem Tax, Import Quota
18 Oct 2011
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Chapter 8 the instruments of trade policy notes. Supply, demand, and trade in a single industry. Ver clearly produces a loss for the importing country. Fortunately or unfortunately, it is easy to twist normal health, safety, and customs procedures so as to place substantial obstacles in the way of trade. An important and relevant special case, however, is that of a small country that cannot have any substantial influence on foreign prices. In the small country case a tariff is fully reflected in domestic prices. The costs and benefits of a tariff or other trade policy may be measured using the concepts of consumer surplus and producer surplus. Using these concepts, we can show that the domestic producers of a good gain, because a tariff raises the price they receive; the domestic consumers lose, for the same reason. There is also a gain in government revenue.
