International Trade Theory and Policy
by Steven M. Suranovic

Trade 90

Trade 90

Trade Problem Set 90 2-1

1. Consider the following trade policy actions (each applied by the domestic country) listed along the top row of the following Table. In the empty boxes, use the following notation to indicate the effect of each policy on the variables listed in the first column. Use a partial equilibrium model to determine the answers and assume that the shapes of the supply and demand curves are "normal". Assume that none of the policies begin with, or result in, prohibitive trade policies. Also assume that none of the policies correct for market imperfections or distortions. Use the following notation:

+   the variable increases
-   the variable decreases
0   the variable does not change
A   the variable change is ambiguous (i.e. it may rise, it may fall)

For example, an import tariff applied by a large country will cause an increase in the domestic price of the import good, therefore a + is placed in the first box of the table.

I

Import Tariff by a Large Country - initial tariff is zero

II

Import Tariff Reduction by a Small Country

Domestic Market Price

+

 

Domestic Industry Employment

   

Domestic Consumer Welfare

   

Domestic Producer Welfare

   

Domestic Government Revenue

   

Domestic National Welfare

   

Foreign Price

   

Foreign Consumer Welfare

   

Foreign Producer Welfare

   

Foreign National Welfare

   

 

International Trade Theory and Policy - Chapter 90: Last Updated on 1/06/08