Deck 8: Nontariff Distortions to Trade

Question 1

The following figure illustrates the demand and supply curves for PCs in a small country.


-With free trade the country imports:

A) Q₁.
B) Q₂.
C) Q₃.
D) Q₁ to Q₅.

Answer 1

Q₁ to Q₅.

Question 2

The following figure illustrates the demand and supply curves for PCs in a small country.


-With a quota imposed on PCs, the country imports:

A) Q₁.
B) Q₂.
C) Q₃.
D) Q₂ to Q₄.

Answer 2

Q₂ to Q₄.

Question 3

Describe the various reasons that some countries still have quotas.

Answer 3

Quotas are considered such a harmful form of protectionism that they are banned by the WTO. Nevertheless, quotas still exist in various forms for four reasons. First, not all countries are members of the WTO. Countries that have not joined are free to impose quotas. Second, countries that are WTO members are allowed to maintain their previously existing quotas for a specified period of time. As such, all of the newly joined members are in the process of eliminating their quotas. Third, some countries implement quotas on some goods in defiance of WTO rules. The U.S. quota on sugar is an example. Fourth, international trade in textiles and apparel is profoundly distorted by the Multifibre Arrangement (MFA). For each developed country, the MFA manages trade in these two industries by enforcing a quota by product and by country for imports of textiles and apparel.

Question 4

Show why an "auction quota" would tend to raise an amount of government revenue equivalent to that generated by a tariff.

Question 5

You are the trade minister of a new member of the WTO. As a result, you must convert all of the quota protection in the country to tariff protection. How would you decide what the ad valorem tariff would be that would give an amount of protection equal to the quota?

Question 6

Show why a quota is worse than a tariff if the demand for the product increases.

Question 7

Consider a choice between a quota and a tariff on Japanese autos, each of which reduces Japanese auto imports to the U.S. by the same amount. How would the following individuals view the choice?
a. The CEO of Ford Motor in Detroit
b. The CEO of Toyota in Osaka
c. A member of the UAW
d. An American auto consumer

Question 8

Explain why the abolition of "sweatshops" in developing countries would make those countries and their citizens worse off.

Question 9

Describe strategic trade policy. Does this type of policy actually increase exports?

Question 10

Explain the effects of transportation costs on trade.