Unit VII - foriegn exchange markets

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Unit V – Trade Policy : 

Unit V – Trade Policy Day and Date:

Unit Highlights… : 

Unit Highlights… Free trade Protection Trade Barriers Tariffs Quotas Subsidies

Text book reference chapters… : 

Text book reference chapters… International Economics by Dominick Salvatore – Chapter 8 & 9 International Economics by Francis Cherunilam – Chapter 9,10, & 28

Let us recapitulate… : 

Let us recapitulate… International Trade Policy pertains to government interference in the form of restrictions and regulations imposed on the free movement of commodities, capital, investment, and people across borders.

Free Trade… : 

Free Trade…

Free Trade - concept : 

Free Trade - concept Trade of commodities flows across borders unhindered by government-imposed restrictions.

Free Trade - Advantages : 

Free Trade - Advantages Specialization in core competencies Economies of Scale Efficient utilization of global resources Innovation – Products and Processes Greater variety at lower prices for customers Inflow of foreign exchange Increase in employment, incomes, and economic growth

Free Trade - Disadvantages : 

Free Trade - Disadvantages Structural unemployment Exposure to cross-border cyclical fluctuations Dumping Threat to domestic industry

Protection…Trade Barriers : 

Protection…Trade Barriers Import Tariffs Import Quotas Voluntary Export Restraints (VERs) Export Taxes Export Subsidies Voluntary Import Expansions (VIEs) Other Trade Policies

Trade Barriers…Import Tariffs : 

Trade Barriers…Import Tariffs Tax collected on imported goods. Two basic ways in which tariffs may be levied: Specific: a fixed charge per unit of imports ad valorem: a fixed percentage of the value of the commodity imported

Trade Barriers…Import Quotas : 

Trade Barriers…Import Quotas Limitations on the quantity of goods that can be imported into the country during a specified period of time. Two basic types of quotas: Absolute quotas: limitations on the quantity of imports during a specified period of time Tariff-rate quotas: allow a specified quantity of goods to be imported at a reduced tariff rate during the specified period

Trade Barriers…Voluntary Export Restraints (VERs) : 

Trade Barriers…Voluntary Export Restraints (VERs) Restriction set by a government on the quantity of goods that can be exported out of a country during a specified period of time.

Trade Barriers…Export Taxes : 

Trade Barriers…Export Taxes A tax collected on exported commodities Export taxes can be set on a specific or an ad valorem basis.

Trade Barriers…Export Subsidies : 

Trade Barriers…Export Subsidies Payments made by the government to encourage the export of specified products. Subsidies can be levied on a specific or ad valorem basis.

Trade Barriers…Voluntary Import Expansions (VIEs) : 

Trade Barriers…Voluntary Import Expansions (VIEs) An agreement to increase the quantity of imports of a product over a specified period of time.

Trade Barriers…Other Trade Policies : 

Trade Barriers…Other Trade Policies Government Procurement Policies Health and Safety Standards Red-Tape Barriers Trade Sanctions

Impact of tariffs…a partial equilibrium approach : 

Impact of tariffs…a partial equilibrium approach

Impact of tariffs…a partial equilibrium approach : 

Impact of tariffs…a partial equilibrium approach Consumption effect Production effect Trade effect Revenue effect

To conclude… : 

To conclude… The issue of free trade versus protectionism has been one of the greatest international economic debates of all times.

You should now be able to, : 

You should now be able to, Describe and evaluate criticisms of Free Trade. Understand the basis for trade barriers. Use a partial equilibrium (supply and demand) model to show graphically the impact of a tariff.

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