WelcometoEcon414InternationalEconomics.ppt

Welcome to Econ 414 International Economics;Tax on imported goods Why? Revenue for Government Protect domestic suppliers of similar goods from foreign completion Protect jobs ;What are the types of tariff?;Under specific tariff, what type of cars will be imported less? Expensive cars? Cheap cars?;2. Ad valorem tariffs Taxes = fraction of the value of the imported goods A 5% tariff on an international price of $10,000 means that customs officials collect the fixed sum of _________. Importers have an incentive to under-voice the price of the imported good. Ad valorem tariffs are more difficult for a country to administer than specific tariffs. ;3. Compound tariffs a combination of an ad valorem and a specific tariff Common on agricultural products whose prices tend to fluctuate. ;Free alongside (FAS) price The price of the imported good in the exporting nation before loading the good for shipment to the importing country Free on Board (FOB) price FAS + the cost of loading the good in the means of transportation ;3. Cost, Insurance, and Freight (CIF) price FOB + all inter-country transportation costs up to the importing country’s port of entry. ;What is consumer surplus (CS)?;What is producer surplus (PS)?;The combined effect ;How does a free trade affect consumer surplus and producer surplus?;What are the economic effects of tariffs?;What are the economic effects of tariffs in a small importing nation? ;2. Case of large importing nation Note: A large nation can influence the international price. World Prices = €8. Domestic government imposes a specific tariff on imported good in the amount of €2 . World supplier reduces the price to €7 Domestic Price after tariff= 7+ 2 = €9 ;What are the economic effects of tariffs in a large importing nation? ;The Effective Rate of Protection;The Effective Rate of Protection;Arguments for Tariffs;Infant Industries From World War II until the 1970s many developing countries attempted to accelerate their development by limiting