青岛滨海学院国际贸易课件chapter 10 arguments for and against protection.pptVIP

Chapter 10: Arguments for and against Protection Figure 10.1 – Incentive Distortions and Their Effects The ideal world P=MB=SMB P=MC=SMC Free trade is economically efficient The realistic world of second best Private actions do not lead to the best possible outcomes for society. There is a difference between private and social benefits and costs Reasons for distortions: Market failure Distortionary government policies Government policies toward externalities – Pigouvian tax/subsidy; Coase theorem Specificity Rule If an externality is present, government policy should intervene as directly as possible on the specific source of the externality, to most enhance national economic efficiency. If a country has some other objective, government policy should intervene as directly as possible on the specific objective, to minimize the national economic cost of achieving the other objective (that is, to minimize the amount of economic inefficiency created). Key: Identify the specific problem clearly, then use a policy to attack the problem directly. Promoting domestic production or employment The social benefits of production in this industry exceed the private ones Spillover benefits to other firms from knowhow or management techniques, or skills Firms in the industry lower costs over time Extra costs to workers if they are forced to switch jobs in other industries Product is essential to national defence The nation takes pride in producing this product domestically Employment is this industry helps redistribute income Figure 10.2 – Two Ways to Promote Import-Competing Production The government can impose a tariff in response to the spillover benefits Net loss from the tariff is b+d However, the MEB=g If g-b-d0, net gain from this policy Specificity rule Encourage domestic firms directly to produce more – subsidy Loss from subsidy b, while gain is g Must consider how the government raises money for the subsidy and whether Could tie the subsidy to #of jobs created rather t