Question

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!

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.

Answer 1

ANSWER:

1) Generally an equilibrium analysis is used because the partial analysis assumes the effect of the tariff only on one market without analysing the effects on the other nations. Therefore, we utilize the general analysis where all of the variables are subjected to change.

2) It is important to measure tariff prices using the effective rate of protection when certain imports threaten the domeestic producers of the product away from the business. Also the rate of effective protection takes into account the tariff on the raw materials that are imported.

3) Trade taxes can be utilized as a major source of government revenue when the citizens of the nation are importing a lot of products from the other countries. This will not only increase the revenue of the government, imposing tariffs will also protect the domestic producers.

4) This is possible when ever there is one monopoly foreign producer for a commodity that is domestically demanded and has no domestic producers. And also the government can impose tariff on the commodity, and that can gain the government some money or income while increasing the cost for the foreign producer to transport the several goods which also rises the price of the goods but not equivalent to the tariff.

5) Here this is used when the exporting country subsidies the exports. This will reduces the cost for the exporting countries and hence the price of their export that threatens the domestic producers. Therefore, to offset this and to protect these producers, the importing country government can impose duties on the imports.

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