Reverse effect on terms of trade, International Economics

Assignment Help:

Q. An export subsidy has the reverse effect on terms of trade to the effect of an import tariff. Domestically a tariff will raise the price of the import good, deteriorating the domestic part of trade. A production subsidy for the export product will lower the local price of the export good, lowering the domestic parts of trade for the country. Therefore the export subsidy and the import tariff have the same effect. This analysis seems to contradict the first sentence in this paragraph. Discuss this paradox.

Answer: While this (Lerner) correspondence may well take place domestically or internationally the tariff will get better a country's terms of trade. An export subsidy on the other side will in fact lower the international price of the now readily available export good therefore hurting a country's terms of trade.

2144_reverse effect on terms of trade.png


Related Discussions:- Reverse effect on terms of trade

Why heckscher-ohlin theory called factor-proportion theory, Q. Why is the ...

Q. Why is the H.O. model called the factor-proportion theory? Answer: The H.O. model survey the limitations and the nature of presumptuous that the sole determinant of compar

Reciprocal demand, Offer curves with example and explabation

Offer curves with example and explabation

Explain the phenomenon of capital flight, Q. Explain the phenomenon of capi...

Q. Explain the phenomenon of capital flight. Answer: The reserve defeat accompanying a devaluation scare is habitually labeled capital flight for the reason that the assoc

Which product is the labor intensive, Q. Use the diagram below taken from ...

Q. Use the diagram below taken from Figure 4-4 to identify the pre-trade situation for Australia and Sri-Lanka. Where on the K/L axis will you search each of the two countries? W

Why study fixed exchange rates, Q. Why Study Fixed Exchange Rates? ...

Q. Why Study Fixed Exchange Rates? Answer: Four main reasons: • Managed Floating - Current monetary system is hybrid of floating rate and pure fixed systems fix

Explain how the aa schedule is derived, Q. Explain how the AA schedule is d...

Q. Explain how the AA schedule is derived. Answer: For a fixed real money supply an enhancement in output leads to an increase in the domestic interest rate. In the foreign e

Analyse international expansion strategies, • What is the motive for expand...

• What is the motive for expanding into foreign markets, and more specifically why the chosen county. • Analysis of at least three alternative international expansion strategies

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd