# Think About What Happened When The Tariffs Were Lifted In Chapter 1

1129 Words 5 Pages
Yang Zhao
Net ID: Zhaobenny
Homework #4

1. You are given the following information:
• The world price of computers is \$5,000
• The value of imported components is \$1,000
• Tariff on imported computers is 20%.

(a) What is the nominal rate of protection? (\$500)
• The nominal rate of protection is the same as tariff on imported computers, which is 20% in this case.
(b) What is the effective rate of protection? (\$500)
• (c) What is the new nominal rate of protection? (\$500)
• The new nominal rate of protection is 25%

(d) What is the new effective rate of protection? (\$500)
• New effective rate of protection is also 25%

2.(a) American consumers of tires (\$500)
• According to Daniel Rosen, when putting a tariff on a competitive foreign good,
2.(c) According to the case study we did in class (this clip was shown), what is the fundamental problem facing America producers of tires? Think about what happened when the tariffs were lifted in 2012? (\$1,000)
• When the tariffs were lifted in 2012, Chinese import doubled in the U.S. in October and November 2012 compare to 2011. After the tariffs were lifted, U.S. tire industry became highly competitive.

3. Assume Australia is operating under free trade.

• World price \$25
• Domestic production is 65
• Domestic consumption is 175.

Then, the government decides to move from free trade to a quota of 40.

• Domestic production after the quota is 90
• Domestic consumption after the quota is 130.
• Price after the quota rises to \$55.

(a) Draw a Supply & Demand diagram which shows all the information above, including autarky, free trade & the impact of the tariff on production (supply), consumption (demand), imports & the price (\$1,000).

Calculate the change in:
(b) CS (\$500)

(c) PS (\$500)

(d) Quota rent
Society and politics strongly demand for fairly distribution of its fund, because it’s been argued that farmers from new MS gets much less than those of “old” MS. According to the article. The unevenly distribution of funds also impacts farming in development countries because the funding is linked to productions. It is difficult for new farmers to enter the industry because most funding is paid to the owners or manufactures that produces larger quantity.

(b) How do direct payments & export subsidies distort trade and encourage over production? Write 3-4 lines on each. (\$1,500) Currently the CAP is based on a two pillar structures, first is funded by European Agricultural Guarantee Fund and its direct payment based on the income of farmers or the market measures which that enable farmers to export at a price below production (80% of the total CAP funding). Pillar II is funded by EAF of Rural Development and aim to encourage economic, social and environmental development (20% of total CAP spending). In this case the more you produce the more direct payments you will receive from CAP because direct payments can be coupled or decoupled which means its linked to production.

(c) What reforms have been made to CAP to reduce the trade distortion in Part B?

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