Presentation Questions

Economics                                                                March 18, 2013

1.       What are the effects of different instruments on trade policies?
Tariffs can be viewed as an added cost of transportation, making sellers unwilling to sell goods. A tariff will make the price of the good rise in the domestic market and will make it fall in the foreign market. Home producers supply more, while consumers demand less. The government gains tariff revenue from a tariff.

Export subsidy produces a negative effect on national welfare. It distorts production and consumption decisions. Producers produce too much and consumers consume too little compared to the market outcome. The terms of trade decreases because the price of exports falls in foreign markets.

An import quota is a restriction on the quantity of good that may be imported. A binding import quota will push up the price of the import because the quantity demanded ill exceeds the quantity supplied by domestic producers and from imports. The government receives no revenue. The extra revenues are called quota rents.
Voluntary export restraint works like an import quota, but the quota is imposed by the exporting government. The profits are earned by foreign governments and producers. Foreigners sell restricted quantities at an increased price.

2.       Which trade policy would I support and why?

The trade policy that I would support is the tariff trade policy, because tariffs help the home government and the home private sector with making money out of imports. Foreign governments have a harder time exporting, foreign completion is lowered, and thus the home country benefits even more.