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

Internal goals of full employment and price stability, Q. How did the inter...

Q. How did the international monetary system created at Bretton Woods in 1944 allow its members to reconcile their external commitments with their internal goals of full employment

Extensions and tests of the classical model of trsde, #question.suppose tha...

#question.suppose that France has a trade surplus with the United Kingdom. What would you expect to happen to price, wages, and commodity price in France? why? What would happen to

Does the existence of non-tradable goods allow for deviation, Does the exis...

Does the existence of non-tradable goods allow for deviations from Purchasing Power Parity? Answer:  Yes the continuation of non-tradable goods permits deviations from Purchas

International trede, explain the newo clacical theory of international tred...

explain the newo clacical theory of international trede

Welfare effects of tariff, Welfare Effects of Tariff can be understood as f...

Welfare Effects of Tariff can be understood as follows: It is important to understand what the welfare effects for the tariff are. While a tariff might seem desirable because i

International economics: Theory & policy, In a day of production, firms in ...

In a day of production, firms in angola can produce 200 liters of oil or 10 kilograms of tungsten. Firms in Namibia can produce 160 liters of oil or 60 kilograms of tungsten. Which

Classical theory, What are disadvantages the classical theory of internatio...

What are disadvantages the classical theory of international trade

What if the taste bias favored the imported good, Q. One of the usually us...

Q. One of the usually used assumptions in deriving the Heckscher-Ohlin model is that tastes are homothetic, or that if the per capita incomes were the similar in two countries, th

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