Question

Question
(a) Identify the effect of tariffs, subsidies and export quotas on each of the sectors of the economy given in the table below. For each sector you just need to mention whether the effect is Positive, Negative or No/Uncertain Effect. For all the above instruments assume the country imposing them as the domestic country and the other countries in a trading relationship with this country as the foreign countries. Finally assume that all countries involved in trade have large economies, the markets for the goods on which these trade intervention instruments are imposed are all highly competitive and the export quotas are not auctioned.   

	Tariffs	Export Quotas	Subsidies
Domestic Producers
Foreign Producers
Domestic Consumers
Foreign Consumers
Domestic Taxpayers

(b) Explain why strategic trade policy though appealing in the short-run might be counter-productive in the long-run.

(c)Interventions by government in free trade through trade barriers benefit domestic producers and workers but impose welfare losses on consumers and/or taxpayers. Given that consumers and/or taxpayers are vastly more numerous than those involved in the sectors benefited through trade barriers, why are the consumers and/or taxpayers not able to generate enough political pressure to counter the imposition of trade barriers?

Answer 1

Answer:1 A

Answer: B

Strategic trade policy though appealing in short term may be counter productive in long term the statement is correct   as strategic TRADE policy signify the certain countries adopt in order to affect the outcome of strategic interactions between firms in an international oligopoly, an industry dominated by a small number of firms. in long term it is counter productive .

Answer:C

Intervention by the government by trade tariff benifits the workers and domestic producers as it decreases the competitions in terms of quality and price but it is not benificial to the customers at large as it deprives them qualitative goods , innovative technology in country ,competitive prices hence trade barrier not benifial to consumers .

Consumers not able to generate pressure on the government countering trade barrier as government has to take into consideration while imposing tariff many other things like loss to domestic companies , balance trade losses , currency exchange depreciate etc and many more .

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