ECN 306 Study Guide - Midterm Guide: International Trade Organization, Calibration, National Treatment
Document Summary
Lower living standard of country imposing tariff. Helps groups tied to product even if it hurts country as a whole. A different policy can always do better. Tariff = imports (m) decrease, pw decreases. Causes exporters to eat" the price of the tariff of the tariff. The pw of m decreases, therefore the new price of m does not increase the full price. Possible to make cl large enough to offset -(b+d) Prohibitive tariff: tariff is large enough to cut off trade. Any tariff increase above the prohibitive line (tp), will not affect the standard of living. Free trade is always better than no trade. Small tariff can benefit welfare of large country. (b+d) < cl = nation better off. (b+d) > cl = nation worse off. (b+d) = deadweight loss if tariff too high. Must be less than free trade amount. Increase cost of access to home market. Their demand does not influence the world price.
