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Lecture 34

ECO100Y5 Lecture Notes - Lecture 34: Countervailing Duties, Comparative Advantage, Free Trade


Department
Economics
Course Code
ECO100Y5
Professor
Kalina Staub
Lecture
34

Page:
of 3
ECO100: Trade Policy - March 19th, 2014
Free trade can make _______COUNTRIES__________________ better off on the
whole, even though _____________EACH INDIVIDUAL___ may not be better off.
This is because free trade allows countries to specialize in those goods in which they
have a comparative advantage and _____INCREASE_______ the overall production.
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Despite the case for free trade, many countries continue to implement certain policies
aimed at _____PROTECTING DOMESTIC INDUSTRY______ and ____REDUCING
TRADE_
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Arguments for protectionism: Certain arguments used to support protectionism
are__VALID___ while some are not. What makes one argument valid and another
invalid?
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1. PROMOTE DIVERSIFICATION OF PRODUCTION (VALID)
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2. PROTECTING SPECIFIC GROUPS (VALID)
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3. IMPROVE TERMS OF TRADE (VALID)
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4. PROTECTING INFANT INDUSTRIES (VALID)
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5. EARNING ECONOMIC PROFITS IN FOREIGN MARKETS (VALID)
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6. KEEPING THE MONEY AT HOME (INVALID)
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7. PROTECT AGAINST LOW-WAGE FOREIGN LABOUR (INVALID)
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8. EXPORTS ARE GOOD, BUT IMPORTS ARE BAD (INVALID)
Methods of Protection
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1. Tariffs, or import duty.
a. Ex. The Canadian government imposes a 10% import tariff on TVs from
Korea. If the world price of a TV is $500, then an importer would pay
$500 to the Korean exporter and $50 to the Canada Revenue Agency. This
essentially raises the domestic price by the amount of the import duty.
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2. Import Quotas- a limit on the ___QUANTITY__ of a foreign good that may be
imported in a given time period
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Sdom
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Ddom
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3. Voluntary Export Restrictions-an agreement by an exporting country to limit the
amount of a good exported to another country
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4. Non-Tariff Barriers
a. Dumping-selling a good in a foreign country at_ LOWER PRICE__ than
in the domestic market.
i. Can be used to get rid of __SURPLUSES___ or as a
____PREDATORY PRICING_____ strategy to drive international
competitors out of business.
!
b. Countervailing duties- a tariff imposed by one country to ___OFFSET
THE EFFECTS OF SUBSIDIES PROVIDED BY FORIGN
GOVERNMENTS