Economics 370: Problem Set #4

Economics 370:  Problem Set #4

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      This problem is worth 5% of your overall grade.  There are 54 points possible Your answers must be turned in before the beginning of class to receive full credit.  Please type your answers, except for math and graphs can be done by hand.

1) (9pts) Steel Tariffs

1. a) (1.5pts) Who initiated the process to impose a tariff on imported steel? When was the process initiated and why?
2. b) (1pt) Identify what US law and WTO rule the petitioner sought to impose this tariff?
3. c) (2pts) In order to impose the tariff on imported steel what did the petitioner need to prove?
4. d) (1pt) (True or False) The ITC ultimately imposed tariffs of between 8% and 30% on steel imports.
5. e) (1pt) When and why were these tariffs removed?
6. f) (2.5pts) The authors of the text estimate the deadweight loss from this tariff. How much do they estimate was lost? Explain how they calculated it.

2) (9pts) Safeguard Provisions v Antidumping Duties (Use textbook to answer)

1. a) (2pts) What is an “escape clause” tariff?
2. b) (1pt) How many “escape clause” tariffs have been: 1) filed and 2) approved by the ITC and the President of the US since 1980?
3. c) (2pts) What is an antidumping duty?
4. d) (2pts) Why do firms file so many more “antidumping” claims than “escape clause” claims?
5. e) (2pts) Why does a firm have the incentive to file an “antidumping” claim even when it knows that it will ultimately lose its claim?

• (20pts) Home Monopoly Tariff and Quota: Suppose the demand function for US made New Balance (NB) running shoes is P=$155-0.02Q_D and the supply function for US made NB running shoes is P=$5+.04Q
  1. (2pts) Assume that New Balance is a monopolist. Calculate the monopolist’s equilibrium quantity and price for NB running shoes in the US without trade.
  2. (2pts) Suppose that the world price for running shoes that are close substitutes to NB running shoes is $45 and suppose the US engages in free trade. Calculate the quantity demand and calculate the quantity supplied of running shoes in the US.
  3. (3pts) Draw and fully label a graph and numerically calculate consumer surplus, producer surplus, and social welfare in the US under: 1) Monopolist Autarky and 2) Free Trade.
  4. (2pts) Now Suppose the US government places a tariff on US made New Balance running shoes of $10 per unit. Calculate the quantity demand and calculate the quantity supplied of NB running shoes in the US.
  5. (4pts) Draw a graph and numerically calculate consumer surplus, producer surplus, government revenue, social welfare, and deadweight loss in the US with the tariff.
  6. (7pts) Suppose the US places a quota equivalent to the amount of imports in part (d).
  7. i) (3pts) Derive the equation for the residual demand function.
  8. ii) (2pts) Find the profit maximizing quantity of production for the monopolist and the profit maximizing price.

iii) (2pts) Calculate the loss of consumer welfare when we go from a tariff to a quota.

5) (6pts) Quotas: “Quota rents” can be allocated in four possible ways.  For each state whether the quota rent is included in the deadweight loss caused by the quota or not and describe why (Use textbook to answer):

1. a) (1.5pts) Import Quota Licenses;
2. b) (1.5pts) Rent Seeking;
3. c) (1.5pts) Auctioning the Quota
4. d) (1.5pts) Voluntary Export Restraints

6) (4pts) GATT and the WTO: Go to www.wto.org and answer the following questions:

1. a) (1pt) How many countries signed GATT in 1948 and how many now currently belong to the WTO?
2. b) (1pt) What was the name of the trade talks that concluded with the replacement of GATT with the WTO?
3. c) (1pt) Was a deadline set for the latest round of negotiations, i.e., the Doha Round? If so, what is or was the date?
4. d) (1pt) Does the WTO have any provisions that set health and safety standards for member countries? If so, state any such provision.

7) (6pts) Export Taxes: Read the following two articles on Argentina’s export taxes http://www.economist.com/node/10925509; http://www.economist.com/blogs/americasview/2014/01/argentinas-wheat-exports and answer the following:

1. a) (2pts) Initially in 2002, why did the government of Argentina place a tax on farm exports?
2. b) (1pt) What was the export tax percentage rate in 2002 and what was it when the first article was published in 2008?
3. c) (3pts) The 2008 article states the following: “If they curb food exports, governments may buy short-term relief for consumers—but at the cost of lowering output and domestic incomes and switching resources into producing other things.” Use the 2014 article, to explain whether this prediction was correct.