Question

Tariffs and Quotas

     Small Country

     A. Effects of tariffs on

        - Domestic Price

        - Domestic production

        - Imports

        - Consumer and producer surplus

        - Production and consumption distortion

        - Government revenue

     B. Quotas

        - Effect on export supply and domestic price

        - Effects on consumer and producer surplus,

          production and consumption distortion

        - The quota rent

        - Methods of allocating the quota rent

     C. Large country tariffs

        - Determination of the world price using export supply

          and import demand curves

        - The terms of trade effect

        - The optimal tariff

Answer 1

The export subsidy is a payment to a firm or individual that ships a good abroad. The price in exporting country increases from Pw to Ps But since price in importing country decreases this worsens the terms of trade In exporting country the producers gain by the area a+b+c The consumer loose by the area a+b. Government subsidy is equal to bdcefg Net welfare loss is bdefg Export subsidy ambiguously leads to costs which are more than benefits