International Economics
(b) Why does this represent the best, or optimal, distribution of sales between the two markets? 12
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Dominick-Salvatore-International-Economics
(b)
Why does this represent the best, or optimal, distribution of sales between the two markets? 12. On a set of axes measuring average costs of pro- duction on the vertical axis and the level of output on the horizontal axis, illustrate the infant-industry argument for protection by drawing the long-run average cost curve of an efficient foreign firm facing constant returns to scale and the long-run average cost curve of an infant industry in a devel- oping nation that becomes more efficient than established foreign firms as it grows. 13. Indicate the strategic trade policy required (if any) if the entries in the top left-hand corner of Table 9.5 were changed to: (a) 10, +10; (b) + 10, 0; (c) + 5, −10. 14. Suppose that from the free trade production point B , the nation of Figure 8.5 wants to produce 65X (point F ). Indicate: (a) How the nation could do this with a tariff or with a subsidy. (b) Why the subsidy would be better. APPENDIX This appendix analyzes graphically the operation of centralized cartels, international price discrimination, and the use of taxes and subsidies instead of tariffs to correct domestic distortions. It also examines strategic trade and industrial policy more formally with game theory. A9.1 Centralized Cartels In Figure 9.4, D X is the world demand curve for exports of commodity X , and MR X is the corresponding marginal revenue curve. Note that the MR X curve lies everywhere halfway between the vertical axis and D X . S X is the cartel’s supply curve of exports of commodity X . S X is the horizontal summation of the marginal curves of all cartel members ( MC X ). Under perfect competition, international equilibrium is at point E , at which 400X are traded at P X = $3. An international cartel of exporters of commodity X acting as a monopolist (or centralized cartel ) would maximize total profits by restricting exports to 300X (given by the intersection of the S X or MC X curve with the MR X curve at point F ) and charging P X = $3.50 (given by point G on D X ). The increase in the total profits of the exporters of commodity X as a group (i.e., of the cartel) is given by the shaded area in the figure. The reason for this increase is that by restricting the total exports of commodity X to 300X, the international cartel eliminated all the exports for which MC X exceeded MR X , so that total profits are higher by the sum of those differences. Salvatore c09.tex V2 - 10/26/2012 12:54 A.M. Page 293 A9.2 International Price Discrimination 293 G F E X 0 100 200 300 400 500 1 2 3 3.50 4 5 D X MR X P X ($) FIGURE 9.4. Maximization of the International Cartel’s Total Profits. D X is the total demand for exports of commodity X, and S X is the total supply of exports. Under perfect competition, equilibrium is at point E, at which 400X are traded at P X = $3. An international cartel of all exporters of commodity X that acts as a monopolist would maximize total profits by restricting exports to 300X (given by the intersection of the MR X and the S X or MC X curves at point F) and charging P X = $3.50 (given by point G on D X ). The total profits of the cartel are higher by the size of the shaded area in the figure. Download 7.1 Mb. Do'stlaringiz bilan baham: |
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