Question

Suppose you work for a US based soybean manufacturing company which supplies soybeans to other countries, among which are China and Nigeria. From your company’s sales records, China is responsible for 80% of your company’s global sales and Nigeria is responsible for 0.2% of your company’s sales. Your contract with the companies in both countries has just expired and the week before negotiations are set to start, it is announced that tariffs have been placed on soybeans in both countries. Given this sudden development, your company has asked you to help out the negotiating team in providing them with answers to the following questions to help in the negotiating process

1.

If both China and Nigeria set a tariff of 10% per unit of soybeans imported from the US, what would be your expectation owith respect to the domestic price of soybeans in China and Nigeria?

Domestic price in China will rise by more than 10% while domestic price in Nigeria will rise by exactly 10%

Domestic price in China will rise by less than 10% while domestic price in Nigeria will rise by more than 10%

Domestic price in China will rise by less than 10% while domestic price in Nigeria will rise by less than 10%

Domestic price in China will rise by exactly 10% while domestic price in Nigeria will rise by exactly 10%

Domestic price in China will rise by less than 10% while domestic price in Nigeria will rise by exactly 10%

Both domestic prices will drop by less than 10%

Both domestic prices will rise by more than 10%

2.

Suppose after the imposition of tariff, Chinese and Nigerian soybean importers turn to Brazil to get their soybeans, thus increasing the elasticity of demand for US produced soybeans, what would happen to the domestic price of US soybeans in China and Nigeria?

Domestic price in China will fall while domestic price in Nigeria will fall

Domestic price in China will rise while domestic price in Nigeria will stay the same

Both domestic prices will fall

Domestic price in China will fall while domestic price in Nigeria will rise

Both domestic prices will rise

Domestic price in China will fall while domestic price in Nigeria will stay the same

Both domestic prices will stay the same

domestic price in China will stay the same and domestic price in Nigeria will fall

3.

Given the tariffs in China only, what market inefficiencies (or deadweight losses) can be expected?

Loss of production efficiency in the importing country only, and consumption loss in the exporting country only

Loss of production efficiency in the importing and exporting country, and consumption loss in the importing country and exporting country

Loss of production efficiency in the exporting country only, and consumption loss in the importing country

Loss of production efficiency in the exporting country only, and consumption loss in the exporting country only

Loss of production efficiency in the importing country only, and consumption loss in the importing country

Loss of production efficiency in the importing and exporting country, and consumption loss in the exporting country only

Loss of production efficiency in the importing and exporting country, and consumption loss in the importing country

4.

Given the tariffs in both China and Nigeria, which of these countries has the potential to benefit from the imposition of the tariff and why?

China benefits because of how much it depends on Soybeans

Nigeria only because it has a high level of demand elasticity

China only, if and only if the terms of trade effect outweigh the dead weight loss

Nigeria only, if and only if the terms of trade effect outweigh the dead weight loss

Both countries benefit because price of soybeans drop in both countries

China benefits because it has a low level of demand elasticity

Both countries benefit because the terms of trade effect outweighs the deadweight losses

neither country benefits because the tariffs will always raise prices in both countries

Nigeria only because it is not hit too much by the tariff given how small its purchasing quantity is

5.

Suppose China and Nigeria would like to use quotas instead of tariffs, which of the following implementations would be of benefit to your company and why?

Auctioning, because it is the most efficient way to generate revenue for the government

Awarding quota licenses to firms in Nigeria and China because who engage in rent seeking, as this will mean they have to pay your company more money so you can send your goods to them.

None because all implementations will yield the same outcome: a loss for your company

All implementations because your company will always make more profit from the quota

Voluntary export restraints because your company will be one of those that keeps the quota rents

None of the implementations will help as the results are not different from tariffs

Awarding quota licenses to firms in Nigeria and China because without rent seeking, this will be optimal for these countries

Answer 1

Ans

1 e because China is a large country and its terms of trade improve due to tariff but Nigeria is too small

2 C because supply has increased and depence on usa has fallen

3 c. Consumption loss occurs because consumers pay higher price and thus consume less. Producer efficiency for example in importing country occurs because some of output is supplied by domestic producers now but cost of production is higher than foreigners

4 c because fall in price as its Terms of trade are greater than loss to consumers from increase in tariff. Brazil is small country and hence can't get TOT benefit