Topic 1 financial crisis

Classified in Economy

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Free trade controversies – protectionism

  • Redistributive effects of free trade

    • unemployment

    • falling production on some sectors/regions

  • How to improve cost/benefit in regions with negative ratios

    • flexible operation of the economy

    • establish appropriate safety nets

    • proceed gradually in trade liberalization

    • rely on international agreements.

  • Instruments for trade contraction

    • Via price

      • Tariff (taxes on imports)

        • Specific: levied as a fixed charge for each unit of imported goods.

        • Ad valorem: is levied as a fraction of the value of imported goods.

        • Compound duty:combination of an ad valorem and a specific tariff.

            • Welfare effects of tariffs?

        • The price of the good in the importing country increases:

          • Domestic producers are better off

          • Domestic consumers are worse off

        • The government gets some revenue from the tariff

        • For a small country, the losses will always be greater than the gains.

        • For a large country the effects are ambiguous because the imposition of a tariff may cause a decrease in demand large enough to reduce the world price of the good

      • Export taxes

    • Via quantity

      • Import quota:restriction on the quantity of a good that may be imported

        • government receives no revenue. Instead, the revenue from selling imports at high prices goes to quota license holders. These extra revenues are called quota rents.

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