Question
The following ranking is in ascending order of home welfare. The ranking is a < d < b < c. Explanation: Suppose Home country is
The following ranking is in ascending order of home welfare. The ranking is a < d < b < c.
Explanation:
Suppose Home country is a small country with perfect competition. Rank the
following policies in ascending order of Home welfare and explain you reasoning. If two
policies are equivalent or cannot be ranked, justify your answer.
(a) Quota of M with quota licenses auctioned to Home firms.
(b) Quota of M with the foreign government's voluntary export restraints.
(c) Quota of M with quota licenses given to foreign exporting firms.b)When a large country imposes a tariff, it gains in welfare as the lower import demand due to tariff induces the foreign producers to lower their price and by affecting the term of trade. Even if a large country imposes the same amount of tariff as a small country, they can gain by imposing a tariff.
c)If a large country imports more quantity than before and then it imposes the tariff, the welfare gain by imposing a tariff will be more than before. As the reduction in imports affects the term of trade more and induces to the foreign producers to lower their price by larger amounts.
d)If a large country imposes a tariff when the import is zero then there is no change in the home welfare. There is no import reduction, hence, it will not affect the term of trade and foreign price
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