Chapter 12 -

1. Draw a graph like Figure 12.3B. Initially the embargo is the one shown in this graph. Then, half of the non embargoing countries switch and become part of the embargo. Use your graph to show how this changes the effects of the embargo. Specifically, what are the effects on the initial embargoing countries and on the target country? Does this shift make the embargo more or less likely to succeed? Why?

2. Which of the following trade policy moves is most certain to bring gains to the world as a whole: (a) imposing a countervailing duty against an existing foreign export subsidy, (b) forming a customs union in place of a set of tariffs equally applied to imports from all countries, or (c) levying an antidumping import tariff? (This question draws on material from Chapters 11 & 12 of our textbook)

3. Draw the diagram corresponding to Figure 12.3 for an embargo on imports from the target country. Identify the losses and gains to the embargoing countries, the target country, and other countries. Describe what values of elasticities are more likely to give power to the embargo effort and what values of elasticities are more likely to weaken it.

Figure 12.3

A. In the Embargoing Countries B. International Trade Price of Price of embargoed goods embargoed goods So = Export supply to Iran from nonembargoing countries P1- E Domestic b supply C Po Po Sn + S = World export supply to Iran from embargoing and Domestic nonembargoing countries demand Dm = Iran's import demand O Quantity 0 Qo Quantity FIGURE 12.3 Effects of an Embargo on Exports to Iran Moving from free trade (F) to an embargo (E) means Embargoing countries lose a Iran loses b+c Other countries gain b World as a whole loses a+ c