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28 Nov 2019

Tariff and non tariff barriers exist in all nations, eitherindependently or as part of a multicountry integrated economy.Present arguments that defend the use of trade barriers andarguments against the use of trade barriers. If theory and evidencesuggest we should follow a system of free trade, why do we havetrade barriers?

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Related questions

A. In general, is a trade good for all involved?

B. Identify two currently active trade agreements the United States is involved with. Do you consider them successful or not?

C. Define Tariffs, Import Quotas, Non-Tariff Barriers, Voluntary Export Restrictions, and Export Subsidies.

D. Do they help or hinder global trade? Why?

We talked in class about free trade areas, customs unions and common markets. We also discussed basic principles of the WTO, including trade should not be discriminatory and should head in the direction of fewer rather than more barriers. And finally we discussed the welfare impacts of tariffs and other trade barriers on a country, including consumers, producers and government. Suppose three countries US ($8), Mexico ($6) and China ($4) make a good at the prices in parenthesis. Now consider the following alternative scenarios:

· Scenario 1: The current tariff rate is $5

a. If there are no free trade arrangements, from which country’s producers will US consumers buy the product? (1 point)

b. If we now signed NAFTA, from which country’s producers will US consumers buy the product? (1 point)

c. Are US consumers and the country as a whole better off or worse off with NAFTA and why? (1 point)

· Scenario 2: The current tariff rate is $3

d. If there are no free trade agreements, from which country’s producers will US consumers buy the product? (1 point)

e. If we now signed NAFTA, from which country’s producers will US consumers buy the product? (1 point)

f. Are US consumers and the country as a whole better off or worse off with NAFTA and why? (1 points)

g. What is the difference in the two scenarios? What does that tell you about the impact of free trade agreements? (2 points)

1) Assume the following table shows the yields per acre of wine grapes and olive oil in two different countries. Country A and country Z. (Also assume that in each country the labor and other processing costs per acre are the same regardless of whether grapevines or olive trees are cultivated).

                        Country A Country Z
Olive Oil yield    40 barrels 30 barrels
Grape yield       90 barrels 45 barrels

Suppose initially each country had erected high tariff barriers to keep out foreign wine and/or olive oil and was producing for its own needs only. Could consumers in both countries benefit if all trade barriers were dropped? If not, explain why not. If consumers could benefit, explain how and identity:

a) Which country has the greater opportunity cost of producing olive oil?
b) The country which would end up exporting wine and which would export olive oil after the elimination of trade barriers?

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