International Trade ProblemProblem II. You are a policy maker. Name and describe situation(s) where...

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International Trade ProblemProblem II. You are a policy maker. Name and describe situation(s) where it is beneficial to do the followings. Briefly support your choice using economic arguments. A possible answer can be never! (15points, 3 points each) 1. Utilizing general equilibrium analysis to study the impact of protection. 2. Measuring tariff rates using effective rate of protection. 3. Using trade taxes as a source of government revenue. 4. Imposing import tariffs to extract a foreign monopoly profit. 5. Imposing import tariffs to offset a foreign production subsidy.   Problem II. You are a policy maker. Name and describe situation(s) where it is beneficial to do the followings. Briefly support your choice using economic arguments. A possible answer can be never! (15points, 3 points each) 1. Utilizing general equilibrium analysis to study the impact of protection. 2. Measuring tariff rates using effective rate of protection. 3. Using trade taxes as a source of government revenue. 4. Imposing import tariffs to extract a foreign monopoly profit. 5. Imposing import tariffs to offset a foreign production subsidy. Problem III. Suppose that the UK is a small open country producing only cars and crude petroleum. For simplicity assume that cars and crude petroleum are labor-intensive and capital-intensive respectively. Now, suppose there is an inflow of workers from Eurozone to the UK. Using the theories we discussed in class, answer the following questions with proper arguments, equations, or graphs. (10 points) 1. How would the wage in the UK change as a result of incoming workers? Why? (2 points) 2. How would the capital rental rate in the UK change as a result of incoming workers? Why? (2 points) 3. How would the production bundle change? Why? (2 points) 4. Suppose by exiting EU open borders policy would stop. Now, given the fact that British people voted for Brexit, determine whether the UK is a labor abundant country or a capital abundant country. Explain. (2 points) 5. Would immigration imply a pro or anti trade production effect for the UK? Why? (2 points)   Problem II. You are a policy maker. Name and describe situation(s) where it is beneficial to do the followings. Briefly support your choice using economic arguments. A possible answer can be never! (15points, 3 points each) 1. Utilizing general equilibrium analysis to study the impact of protection. 2. Measuring tariff rates using effective rate of protection. 3. Using trade taxes as a source of government revenue. 4. Imposing import tariffs to extract a foreign monopoly profit. 5. Imposing import tariffs to offset a foreign production subsidy.   Problem II. You are a policy maker. Name and describe situation(s) where it is beneficial to do the followings. Briefly support your choice using economic arguments. A possible answer can be never! (15points, 3 points each) 1. Utilizing general equilibrium analysis to study the impact of protection. 2. Measuring tariff rates using effective rate of protection. 3. Using trade taxes as a source of government revenue. 4. Imposing import tariffs to extract a foreign monopoly profit. 5. Imposing import tariffs to offset a foreign production subsidy. Problem III. Suppose that the UK is a small open country producing only cars and crude petroleum. For simplicity assume that cars and crude petroleum are labor-intensive and capital-intensive respectively. Now, suppose there is an inflow of workers from Eurozone to the UK. Using the theories we discussed in class, answer the following questions with proper arguments, equations, or graphs. (10 points) 1. How would the wage in the UK change as a result of incoming workers? Why? (2 points) 2. How would the capital rental rate in the UK change as a result of incoming workers? Why? (2 points) 3. How would the production bundle change? Why? (2 points) 4. Suppose by exiting EU open borders policy would stop. Now, given the fact that British people voted for Brexit, determine whether the UK is a labor abundant country or a capital abundant country. Explain. (2 points) 5. Would immigration imply a pro or anti trade production effect for the UK? Why? (2 points)

Ishmeet Singh · Accepted Answer

Problem II. You are a policy maker. Name and describe situation(s) where it is beneficial to do the followings. Briefly support your choice using economic arguments. A possible answer can be never! (15points, 3 points each)
1. Utilizing general equilibrium analysis to study the impact of protection.
Sol’n:  Within the general equilibrium analysis, the consequences of tariff on consumption, production, trade and welfare isn't only a selected to a product or sector but practically in every sector of the economy gets affected in a method or the opposite , until the financial system reaches a replacement equilibrium position.
While tariff-imposing country is little, the domestic prices of the imports will rise to the complete amount of tariff for the consumers and producers therein small tariff imposing country. The international price will, however, remain unaffected.
It shows that the tariff has caused discount within the welfare of tariff-imposing small country. The shift in consumption point from R1 to R2 signifies its consumption effect. After tariff, country exports BD quantity of fabric and imports R2D quantity of steel.
Thus within the case of a little tariff-imposing country, the import tariff has adverse effects.
If the tariff-imposing country is large, the reduced demand for imports subsequent upon the imposition of tariff may reduce the planet demand for the merchandise to such an extent that the worth of importable good falls. In such a situation, the autumn in import price relative to export price causes a change within the international price ratio and brings about an improvement within the terms of trade of the tariff-imposing large country. Within the case of an outsized tariff-imposing country, since there's a fall in import prices relative to export prices, there's an improvement within the terms of trade. This is often the positive terms of trade effect.
Hence the imposition of tariff by an outsized country, despite the reduction within the volume of international trade, leaves it a net beneficiary from the policy of tariffs.
2. Measuring tariff rates using effective rate of protection.
Sol’n: Official tariff rates were intended to boost domestic production in a protected industry and to discourage the imports. There is a specific percentage of tariff imposed on a product when it enters other country and it is known as nominal tariff rate. A one-tenth tariff on finished and imported goods was alleged to have a one-tenth protection towards the domestically manufactured substitute of the same product. It would be essential to consider that the speed of nominal tariff was found to be directly proportional to the degree of protection. 
S1 is that the supply curve of the ultimate product machine and S0 is that the supply curves of labor, which is that, the only primary factor. The number of machines is measured along the horizontal scale and price is measured along the vertical scale.
AQ or OP is that the constant trade international price of the machine and OQ is that the input of labor employed. The unit value added is measured by BQ/AQ. As tariff is imposed upon the imported machine, its domestic price rises from OP to OP2 and therefore the domestic production of machine expands form OQ to OQ2.
If a further tariff is levied upon the imported inputs of this commodity, the availability curve shifts up from S1 to S2. Consequently, the assembly of machine contracts from OQ2 to OQ1. However, there's a net increase in production to the extent of QQ1. this is often on account of PP1 which is that the difference between the rise within the domestic price (PP2) and increase within the cost of production (P1P2), i.e., PP1 = PP2 – P1P2. The effective rate of production (g) is measured by dividing PP1 by the worth added or the contribution of the first factor.
3. Using trade taxes as a source of government revenue.
Sol’n: The Laffer curve tells the connection between total tax income and tax rates,

Problem II. You are a policy maker. Name and describe situation(s) where it is beneficial to do the followings. Briefly support your choice using economic arguments. A possible answer can be never!...

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