Question

7. Forms of Dumping Giocattolo is a profit-maximizing firm that produces toy cars. In Italy, its home country, it enjoys unchallenged market power due to trade barriers that restrict competition. However, Giocattolo also exports toy cars to Spain, where the market is highly competitive. Given this scenario, which of the following statements is correct? O Giocattolo sells toy cars at a lower price in Spain to dispose of its excess inventories. O The demand that Giocattolo faces for toy cars in Italy is less elastic than in Spain. The demand that Giocattolo faces for toy cars in Spain is less elastic than in Italy. Suppose Giocattolo realizes that it has excess inventories of toy cars because Italian children do not want to play with them anymore and decides to resort to by occasionally selling toy cars in Spain at lower prices than in Italy. This may encourage the Spanish government to protect the interests of by

Answer 1

Giocattolo acts as monopoly in Italy and act as a competitive firm in Spain.

In monopoly market demand curve is steeper relative to the perfectly competitive market.

So, the demand for toy cars in Italy is less elastic than in Spain.

Answer: Option (B).

Suppose Giocattolo realizes that it has excess inventories of toy cars because Italian children do not want to plaly with them anymore and decides to resort to Sporadic dumping by occasionally selling toy cars in Spain at lower prices than in Italy. This may encourage the Spanish government to protect the interest of Spanish toy market by imposing temporary tariff duties.

Note: Sporadic dumping is a situation in which producers sells the unsold stocks at lower price in foreign market without reducing the domestic price.