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

Market structures, how does the buying and selling of stock fit the model f...

how does the buying and selling of stock fit the model for perfect competition

How much steel will the monopolist sell, Q . Now the monopolist discovers ...

Q . Now the monopolist discovers that it will export as much as it likes of its steel at the world price of $5/ton. It will thus expand for- export production up to the point whe

Development by stabilisation & reform-lower income countries, Development t...

Development through stabilisation and reform can be understood as follows     The reasoning here was that the trade and resource transfer could not, by themselves, lift L

Fiscal policy, What are the government's fiscal policy options for a recess...

What are the government's fiscal policy options for a recessionary gap caused by cost-push inflation?  Use the aggregate demand-aggregate supply model to show the impact of these p

Explain the concepts of trade creation, When asked by the Carnegie Commissi...

When asked by the Carnegie Commission to prepare a report on post war Preferential Trading Agreements, Viner (1950) pointed out that they are not free trade. He used the concepts o

International trade commission proceedings, Q. It can be demonstrated that...

Q. It can be demonstrated that any protectionist policy, which effectively shifts real resources to import competing sector or industry, will harm export industries or sectors. T

What are the main aspects of economic life, Q. What are the main points of...

Q. What are the main points of economic life that macroeconomics analysis is most concerned with? Answer: There are four major aspects that are saving, unemployment, trade imb

Explain the difference between given expressions, Q. Explain the difference...

Q. Explain the difference between the following two expressions: Y = C(Y d ) + I + G + CA(EP*/P, Y d ) and Y = C + I +G + CA Answer: The first expression corresponds to a

Effects of german unification on germanys interest rate, Q. Explain the pur...

Q. Explain the purpose of the following figure. Show the effects of German unification on Germany's interest rate. Answer: The major purpose is to show that different i

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