ECON MACRO
5th Edition
ISBN: 9781337000529
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 19, Problem 2.3P
To determine
Between import-substitution policy and export-promotion policy, the policy that is preferred by the domestic producers and consumers.
Concept Introduction:
The measures taken by the government to reduce the import of goods and services by promoting local businesses to develop the goods and services indigenously is known as import-substitution policy whereas the measures taken by the government to promote the export of locally produced goods and services in the global market is known as an export-promotion policy.
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Consider a small country that exports steel. Suppose that a “pro-trade” government decides to subsidize the export of steel by paying a certain amount for each ton sold abroad. How does this export subsidy (similar to a tariff) affect the domestic price of steel, the quantity of steel produced, the quantity of steel consumed, and the quantity of steel exported? How does it affect consumer surplus, producer surplus, and government revenue? Is it is a good policy from the standpoint of economic efficiency?
Explain why a quota may result in lower total surplus in the home country than a tariff, even if they have the same effect on imports and the domestic price.
Chapter 19 Solutions
ECON MACRO
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