MGEC82H3 Lecture Notes - Lecture 8: World Trade Organization, Windfall Gain, Import Quota
Document Summary
Mgec82 (frazer) - questions at the end of lecture 8: describes three methods that a government can use to allocate quota rights to firms. In oil and dairy products, at one time the u. s. government issued import licenses based on their historical share of the import market. This method discriminated against importers seeking to import goods for the first time. This technique has been used in australia and new zealand. Competition among importers to obtain the licenses would drive up the auction price to a level at which no windfall profits would remain, thus transferring the entire revenue effect to the government. Tariffs: an absolute quota is a more restrictive trade barrier, the domestic price can rise above the world price than an equivalent import tariff. This is revenue that would be lost to the government under a quota unless it charged a license fee on importers. As a result, member countries of the world trade.
