International Economics
Download 7.1 Mb. Pdf ko'rish
|
Dominick-Salvatore-International-Economics
Problem If the absolute value of the price elasticity of demand in the domestic market (e
d ) is 2 and e f in the foreign market is 3, and MR = MC = $10, calculate at what price the Salvatore c09.tex V2 - 10/26/2012 12:54 A.M. Page 294 294 Nontariff Trade Barriers and the New Protectionism MC E X 0 100 200 300 400 1 2 3 6 4 P X ($) Total Market X 0 100 200 300 1 2 3 4 X 0 100 200 1 2 3 6 4 5 5 P X ($) Domestic Market P X ($) D f D d MR f MR d Foreign Market FIGURE 9.5. International Price Discrimination. The total output that maximizes total profits is 300X and is given by point E, where the MR(= MR d + MR f ) curve crosses the MC curve. Of these 300X, 200X should be sold in the foreign market (given by the point where a horizontal line from point E crosses MR f ) at P X = $3, and 100X should be sold in the domestic market (given by the point where a horizontal line from point E crosses MR d ) at P X = $4. The principle to maximize total profits is that MR d = MR f . domestic monopolist practicing international price discrimination should sell in the domestic market (P d ) and in the foreign market (P f ) in order to maximize total profits. [Hint : Use the formula MR = P(1−1/e) from microeconomic theory.] A9.3 Tariffs, Subsidies, and Domestic Goals In this section, we show graphically that a subsidy is better than a tariff to achieve a purely domestic goal. Figure 9.6 (an extension of Figure 8.5) shows that with free trade the nation produces at point B (40X and 120Y) and consumes at point E (100X and 60Y) on indifference curve III at P X /P Y = P W = 1. If now the nation wants to produce 65X (point F in the figure), it can do so either by imposing a 100 percent import tariff on commodity X or giving a 100 percent subsidy to domestic producers of commodity X. By imposing a 100 percent tariff on the imports of commodity X (so that P X /P Y = P F = 2), the nation will produce at point F (65X, as required, and 85Y) and consume at point H on indifference curve II (if the government redistributes the tariff revenue as a general subsidy to consumers). So far this is the same as in Figure 8.5. With a 100 percent subsidy to domestic producers of commodity X, the price consumers pay remains P X /P Y = 1 (as under free trade) and the nation will reach indifference curve II (which is higher than indifference curve II ). Thus, a subsidy is better than a tariff that gives the same amount of protection to domestic producers because the subsidy, as opposed to a tariff, does not distort the prices that consumers pay. Download 7.1 Mb. Do'stlaringiz bilan baham: |
Ma'lumotlar bazasi mualliflik huquqi bilan himoyalangan ©fayllar.org 2024
ma'muriyatiga murojaat qiling
ma'muriyatiga murojaat qiling