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Solution for International Trade 3rd Edition Chapter 10, Problem 1

by Robert C. Feenstra, Alan M. Taylor
287 Solutions 11 Chapters 58035 Studied ISBN: 9781429278447 Marketing 5 (1)

Chapter 10, Problem 1 : 1.Describe the impact of each of the following...

1.Describe the impact of each of the following goals from the Hong Kong WTO meeting on (i) domestic prices and welfare of the country taking the action and (ii) world prices and welfare for the partner countries.

a.Elimination of agriculture export subsidies

 

Step-By-Step Solution

1.a. Refer to Figure 10-1; if agriculture export subsidies are eliminated in a small exporter, then its domestic prices will decrease from PW + s to PW, and the associated deadweight loss of area b + d will disappear.  The world prices will not be affected as the partner countries still pay the world price PW.

Refer to Figure 10-2; if agriculture export subsidies are removed in a large exporter, then the domestic price drops from P* + s to PW, whereas the world price paid by the partner countries increases from P* to PW. The agriculture exporter enjoys a term-of-trade and welfare gain, whereas the consumer surplus of its trading partners lowers as a result of paying higher prices.

 

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