ECON340 Study Guide - Final Guide: Money Supply, Foreign Exchange Market, Monetary Base
27 Jun 2018
School
Department
Course
Professor
Chapter 8
ā Tariff -- tax on imports
ā Redistributes well-being from domestic consumers of the product ot domestic
producers and the government (which collects the tariff revenue)
ā Small country cannot affect world prices -- a tariff on imports lowers national well-being
ā Costs consumers more than it benefits producers and the government
ā By raising the price on domestic sales a tariff redistributes incomes from consumers to
producers
ā amount redistributed = price increase X average quantity of domestic sales
ā Shifts some purchases from foreign products ot home products -- costs more resources
to make at home than to buy abroad ā production effect
ā Makes consumers pay tax revenue directly to the government
ā Discourages some purchases that were worth more than they cost the nation ā
consumption effect
ā By shifting some purchases toward costly home products and by discouraging some
purchases worth more than they cost the nation the tariff costs the nation as a whole
ā Cost = Ā½ tariff X drop in imports
ā Effective Rate of Protection -- measures percent effect of entire tariff structure on the
value added per unit of output in each industry
ā Monopsony Power -- when a country as a whole can affect the price at which foreigners
supply imports
ā For a large country a positive tariff can increase national well-being bc the tariff has a
beneficial terms of trade effect
ā Nationally Optimal Tariff -- yields largest possible gain
ā World Trade Organization (WTO) -- formed as successor to General Agreement on
Tariffs and Trade (GATT)
ā Oversees global rules of government policies toward trade and provides a forum
for negotiating global agreements to reduce barriers to trade
ā Rounds of multilateral trade negotiations have been especially successful in
reducing the tariffs that industrialized countries impose on their imports of
nonagricultural goods
Chapter 9
ā Nontariff barriers (NTB) -- reduce imports by limiting quantities, increasing costs, or
creating uncertainties
ā Import Quota -- sets a maximum quantity of imports
ā If markets are competitive, quota has same effects as tariff that results in same
import quantity
ā Imposing quota raises domestic price, reduces domestic consumer surplus,
increases domestic producer surplus and if importing country is large, reduces
world price by reducing demand for foreign product
Chapters 12, 14, 16, 17, 19, 20, 22, 23, 24, 20, 25
Chapter 12
ā 3 Country Model of a Trade Bloc
ā Economic benefits for the partner countries and the world depend on its trade
creation (amount by which it raises the total volume of world trade)
ā Economic costs depend on trade diversion (volume of trade it diverts from lower
cost outside suppliers to higher cost partner country suppliers)
ā Sources of gains to members of a trade bloc
ā Increased competition that lowers prices or costs
ā Enhanced ability to achieve scale economies
ā Greater product variety
ā Ability to attract more direct investment by foreign companies
ā Free Trade Area -- member countries remove tariffs and other barriers to trade among
themselves but keep their separate barriers on trade with non member countries
ā Member countries must use Rules of Origin and maintain customs administration
on the borders between themselves to keep outside products from entering the
high-barrier countries cheaply by way of their low-barrier partners
ā Customs Union -- member countries remove tariffs and other barriers to trade among
themselves and adopt a common set of external tariffs
ā Trade Embargo --
Chapter 14
ā World market price trends are unfavorable to producers (especially in developing
countries)
ā International Cartel -- could bring gains to a developing country that exports the
cartelized product
ā OPEC
ā 4 forces dictate the speed at which a cartel erodes
ā Rise in product demand elasticity
ā Rise in the elasticity of competing supplies
ā Decline in the share of the cartel in the world market
ā Rise in cheating by members of the cartel
Chapter 16
ā Balance of payments
ā Credit
ā Debit
Document Summary
Redistributes well-being from domestic consumers of the product ot domestic producers and the government (which collects the tariff revenue) Small country cannot affect world prices -- a tariff on imports lowers national well-being. Costs consumers more than it benefits producers and the government. By raising the price on domestic sales a tariff redistributes incomes from consumers to producers. Amount redistributed = price increase x average quantity of domestic sales. Shifts some purchases from foreign products ot home products -- costs more resources to make at home than to buy abroad production effect. Makes consumers pay tax revenue directly to the government. Discourages some purchases that were worth more than they cost the nation consumption effect. By shifting some purchases toward costly home products and by discouraging some purchases worth more than they cost the nation the tariff costs the nation as a whole. Cost = tariff x drop in imports.
