Q Evaluate the effects of an import tariff by the government of a small country Home, - Instruments of Trade Policy Question: i. Evaluate the effects of an import tariff by the government of a small country. Explain in detail the effects of an import tariff on the economic welfare of the small country. ANSWER: The effectiveness of an import tariff in a small country can raise the domestic cost by the full value of the tariff. The enlargement of the domestic prices of domestic substitutes and imported goods can reduce the customer surplus in the competitive marketplace (Caldara et al., 2020, p41(4)). While the small country implements an import quota then the national welfare is degraded. More restrictions in quotas and tariffs lose the national welfare structure. Describe the potential advantages to the economy if the government offers an export subsidy ANSWER: II. Export subsidies can be implemented as they can expand the domestic firm's market share in the foreign country, indicating the approval of higher profitability. It can raise the producer surplus in the export marketplace while lower in the import marketplace (Molligo et al., 2020, p45(3)). The large country's national welfare structure completely disrupts while the export subsidies are implemented. In the case of developing or small countries, export subsidies can provide benefits from economies of scale. Related: Predict trade flows between two countries Discuss Absolute and Comparative Advantage List relationships of Standard Model Discuss Controversies in Trade Policy Instruments of Trade Policy Discuss Different market structures
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