International Trade Theory and Policy Worksheet

DescriptionECON 2181 – Episode 20
Topic 10: Export Policies in Resource-Based and
High-Technology Industries
• Governments subsidize high-technology industries
because they may create benefits that spill over to other
firms in the economy. That is, governments believe that
high-tech industry produces a positive externality. This
argument for a subsidy is similar to the infant industry
argument used to justify protective tariffs.
• In addition to the spillover argument, governments and
industries also argue that export subsidies might give a
strategic advantage to export firms that are competing
with a small number of rivals in international markets.
• To examine whether countries can use their subsidies
strategically, we use the assumption of imperfect
competition. We already used this assumption in
Chapter 9. Now we allow for two firms in the market,
which is called a duopoly.
• To capture the strategic decision making of two firms, we
use game theory, the modeling of strategic interactions
(games) between firms as they choose actions that will
maximize their returns.
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ECON 2181 – Episode 22
Topic 11: Trade Agreements
https://voxeu.org/article/wto-20-thinking-ahead-global-trade-governance
https://voxeu.org/article/it-time-international-supply-chain-agreement
ECON 2181 Page 1
Tasia=t,
Tmexico=0,
Tmexico=t Tasia=t
Tasia=0,
Tmexico=t
Tasia=0,
Tmexico=0
Import price
Pa+t
Pa+t
Pa
Pa
Total import quantity
AE
AE
E’A’ (increase)
E’A’
Import quantity from
Mexico
EB
EC (increase)
trade diversion
0
E’B’
Import quantity from Asia AB
AC (decrease)
E’A’ (increase)
trade creation
B’A’
Consumer surplus
FAE
FAE
FA’E’ (increase by FA’E’
abcde)
Tariff revenue
a+b+c+d
d
0 (decrease by
abcd)
0
U.S. welfare change
-(a+b+c) =DWL
e
e
Mexico producer surplus
gain
a+b
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ECON 2181 – Episode 23
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https://voxeu.org/article/labour-clauses-trade-agreements-promote-southern-exports-north
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https://news.un.org/en/story/2021/11/1105792
https://voxeu.org/content/combatting-climate-change-cepr-collection
https://voxeu.org/article/changing-specialisation-cope-climate-change
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ECON 2181 – Episode 17
Topic 9: Import Tariffs and Quotas Under Imperfect Competition (Continued)
Trade Policy Under Imperfect competition and Externalities = Strategic Trade Policy
1. Monopoly (both at home and abroad)
2. Anti-dumping policy
3. Infant industry protection
1. Tariff under Home Monopoly
output
Price
Import quantity
Domestic producer
surplus
Autarky
qA
(MR=MC)
PA
0
Free Trade Tariff (t)
qF
qT
(Pw=MC) (Pw+t=MC)
PW
PW+t
BC
B’C’
OAB
OA’B’
PA>PQ>PT=PW+t>Pw
Domestic producer surplus would increase by ABB’A’ under tariff;
Domestic producer surplus would increase by ABB”B”’A”’ under quota;
ECON 2181 Page 1
Quota (B’C’)
qq
(MR’=MC)
Pq
B’C’
OA”’B”’B”
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2. Tariff Under Foreign Monopoly
https://www.reuters.com/article/us-usa-trade-eu-chronology-timeline/timeline-highlights-of-the-16-yearairbus-boeing-trade-war-idUSKBN26Y2MH
Free Trade
Tariff (t)
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Free Trade
Tariff (t)
Output (Export quantity) qF (MR=MC) qT (MR=MC+t)
Price
Export quantity
Airbus profit
Consumer surplus
Government revenue
pF
qF
ABCD
EAD
0
pT
qT
A’B’C’D’ (fell)
EA’D’
D’A’GF
Pt-Pf < t Consumers surplus loss: a+b; government revenue is a+c (terms of trade gain). The source of welfare gain: forcing airbus to earn Pt-t instead of Pf 3. Antidumping Duty and Countervailing Duty Antidumping duty: duty imposed on foreign firms accused of dumping behavior (Pexp Purchase answer to see full attachment

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