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23 Cards in this Set
- Front
- Back
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International Commodity Agreements
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designed to stabilize the world price of a commodity or dispose of surpluses
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Who normally presses for ICAs
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Producing nations because when the response of producers and consumer to a price change is low, the market mechanism is to sluggish and cumbersome and needs to be modified by some central direction
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3 forms of ICAs
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-Export Restriction Schemes
-Buffer Stock -Multilateral Contract |
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Export Restriction Schemes
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control over the quantity marketed internationally by means of national quotas for the production or export of the supplying countries
93' Cocoa agreement |
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Buffer Stocks
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set a minimum and a maximum price for the commodity to be maintained respectively by purchases or by sales from central stocks of the commodity
The objective is to maintain the price within a predetermined range |
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Multilateral Contracts
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specify a maximum price at which producing countries are obliged to sell stipulated quantities to consuming countries and a minimum price at which consuming countries are obliged to purchase stipulated quantities from producing countries
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What do the three mechanisms of ICAs have in common?
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All interfere with the allocative functions of the market, prventing shifts of resources between industries and thereby causing inefficiencies.
The buffer stock requires lots of money to maintain commodity stocks |
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Price support at the low level
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depends on the availability of financial resources, and those can be expanded if the participating countries agree to do so
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Maintenance at the price ceiling
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depends on the availability of the commodity in stock. Once the stock is exhausted nothing can prevent the price from rising above the ceiling, making the agreement impossible
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Problem with ICAs
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Besides financing and storing surpluses, noncompliance of small produces with the regulations and by the incentive offered by high prices to the production of synthetic substitutes
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Compensatory Financing
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Doesn't interfere with the workings of the market mechanism so it is a more efficient method of offsetting fluctuations in commodity prices or export earnings
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Major exception to ICAs involving developing contries and primary commodities
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Textiles because of simple technology and relative labor intensity or production, the industry is the first candidate for introduction into a developing economy
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Multifibre Agreement
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Specified a max amount of cotton, wool and synthetic fibers that each country may ship
Uruguay Rounds pack had it abolished in 05' |
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International Cartel
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group of corporations located in different countries that agree to restrict trade of certain commodidity
OPEC |
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Local Content Requirements
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minimum portion of the value of a product that must be produced domesticlly
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Dumping
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-Sporadic
- Predatory - Persistant (elasticties) |
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Export Subsidary
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govt pays exports to export or loans foreign purchasers at low interest rates (big items)
-distorts competitive advantage - increases DWL |
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Tariff vs Everything else
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-only distort market, others displace it
- visble and known |
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Quota
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provides no revenue to govt. unless licenses are purchased
-quota rent |
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When are quota and tariffs equilvalent
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if demand and supply are stationary perfect competition exists
If D^ or S decreases, DWL is greater for a quota than a tariff |
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VER
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discriminate between the sources of their supply
- quality upgrading: ship only expensive stuff to maximize profit |
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Consumption effect of a tariff
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the loss of economic welfare due to consumers paying a higher price for and consuming less of the imported product
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Production Effect
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represents the wasted resources that go to less efficient domestic industries due to the tariff
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