Department of Economics
International Trade Policy
Time Allowed: 2 Hours
国际贸易政策代写 Each question carries 50 marks. 1.Using the framework developed in Feenstra (2003) for measuring overall social welfare, demonstrate that:
Calculators may be used in this examination but must not be used to store text. Calculators with the ability to store text should have their memories deleted prior to the start of the examination. Department of Economics
Please answer THREE (3) QUESTIONS
Each question carries 50 marks.
Using the framework developed in Feenstra (2003) for measuring overall social welfare, demonstrate that:
(a) The optimal tariff rate for a small country in perfect competition is zero. (25 marks)
(b) A small positive rate of tariff will necessarily raise welfare for a large country in perfect competition. (25 marks)
(a) Suppose that a home firm and a foreign firm are engaged in Cournot competition in the home market, (i) graphically illustrate the free trade equilibrium; (ii) suppose that a voluntary export restraint (VER) is negotiated by the home government with the foreign firm, so that the latter agrees not to sell more than its free trade quantity, what is the effect on the equilibrium? (iii) suppose that the VER is negotiated at below the free trade quantity, show the effect on the equilibrium. (25 marks) .
(b) Suppose that the home and foreign firms are initially engaged in Bertrand competition in the home market, and that the imported and domestic products are imperfect substitutes; now suppose that a VER is negotiated at the free trade quantity, discuss and show the effect of the VER on the equilibrium and on profits. (25 marks)
Drawing on M. Melitz (When and How Should Infant Industries Be Protected?) and R.E. Baldwin (The Case Against Infant Industry Tariff Protection) and other relevant literature where necessary, critically assess the arguments advanced in favour of protection for infant industries. (50 marks)
Consider the case of a single home firm in Country A and a single foreign firm in Country B selling a product to a third country (Country C). Both firms face a common constant marginal cost of c. The firms act as Cournot oligopolists. All consumption occurs in the third market. Assume the following linear (inverse) demand function:
p=α – β（q + q）（1）
(a) Find the best response function of each firm as a function of the other firm’s output level and then solve for the profit-maximizing output levels for the two firms, the equilibrium price and Country A’s welfare. (15 marks)
(b) Suppose the government in Country A provides an export subsidy of SA on each unit produced by firm A while the government of Country B remains passive, show how this subsidy affects the equilibrium output of each firm and the price in Country C. Does the subsidy increase Country A’s welfare? Explain your result. (20 marks)
(c) Assuming that the two firms competed in prices rather than quantities, graphically show the welfare effects on Country A arising from its government’s continued subsidy to Firm A. Comment on the outcome relative to that obtained in Part (b) and explain the differences, if any. (15 marks)
(a) Using Krugman’s (1991, 1993) model of Preferential Trade Agreements (PTA) explain the effects on tariffs and world welfare as the number of trading blocs become larger and fewer (25 marks).
(b) Are the conclusions reached by Krugman (1991, 1993) dependent on the nature of the trading bloc formed? Explain your answer (10 marks).
(c) Explain the concept of ‘natural trading blocs’ that was posited by Krugman in a later work. What is the relationship between transport costs and welfare in this framework? (15 marks)
Drawing on studies with which you are familiar, comment on the efficacy of export promotion agencies (EPAs) in raising firm level exports in developing countries
(NB: In referencing empirical studies to support your response, you are expected to discuss the econometric methodology employed by the authors, the main econometric challenge(s) and the strategy adopted to resolve them, and their findings). (50 marks)