18 Questions
Which statement best explains the impact of Brexit on trade policy?
Brexit has led to higher import tariffs on labor-intensive goods.
In the context of trade policy, which scenario would best align with the predictions of the median voter model?
Trade policies are formulated to cater to the preferences of the median voter in a population.
How do import tariffs affect labor-intensive goods?
Import tariffs on labor-intensive goods discourage their production in domestic markets.
What happens when import subsidies are applied to capital-intensive goods?
Import subsidies on capital-intensive goods encourage innovation and competitiveness.
How is inequality related to trade policy?
High inequality can influence the type of trade policies a country implements.
Which factor is least likely to lead to 'dumping' by firms?
Firms engaging in monopolistic competition with trade costs.
According to the median voter model, what type of goods should capital-abundant countries, like developed countries, impose import tariffs on?
Labor-intensive goods
How does the median voter model predict trade policy changes in developed countries with rising wage inequality?
Increase in protectionist trade policy
What effect did Brexit have on Britain's average tariffs, according to the text?
Increased them
Which of the following is NOT a prediction of the median voter model?
Decrease in protectionist policies with rising inequality
Why do developed countries, according to the text, use import tariffs on goods?
To help a domestic industry
What is the main implication of a capital-abundant country imposing tariffs on labor-intensive goods, as per the median voter model?
Encouraging labor-intensive industry growth domestically
What does trade diversion refer to in the context of an importing country lowering its tariff against a partner in a free trade area?
The country importing at a higher cost compared to importing from outside.
What could cause the effective rate of protection on a good to be negative?
A positive tariff on an input to producing the good, together with a zero tariff on the good itself.
In the context of trade barriers, what does the decrease in bilateral imports due to a trade barrier imposed on the exporting country signify?
Decrease in overall imports of both countries involved.
How does a positive tariff on an input affect the effective rate of protection for a good?
Increases the effective rate of protection.
Why is trade diversion considered undesirable for an importing country lowering its tariff against a partner in a free trade area?
Consumers pay higher prices for goods imported from the partner country.
What is the impact of an excessive import quota being set larger than the quantity that would enter under free trade?
Increase in overall imports and domestic production.
Study Notes
Brexit and Trade Policy
- Brexit led to Britain's average tariffs increasing.
Median Voter Model and Trade Policy
- The median voter model predicts that capital-abundant countries, like developed countries, should impose import tariffs on labor-intensive goods.
- As wage inequality rises in developed countries, the median voter model predicts that trade policy will become more protectionist.
Import Tariffs and Subsidies
- Import tariffs on labor-intensive goods lead to a decrease in their production and an increase in the production of capital-intensive goods.
- Import subsidies on capital-intensive goods lead to an increase in their production and a decrease in the production of labor-intensive goods.
Dumping and Trade Barriers
- Dumping refers to the practice of exporting a product at a lower price than its domestic market price, often to gain a competitive advantage.
- A decrease in bilateral imports due to a trade barrier imposed on the exporting country signifies trade diversion.
Effective Rate of Protection
- A positive tariff on an input can lead to a negative effective rate of protection on a good.
- An excessive import quota set larger than the quantity that would enter under free trade can lead to a negative effective rate of protection.
Inequality and Trade Policy
- Inequality is related to trade policy, as rising wage inequality in developed countries can lead to more protectionist trade policies.
Free Trade Areas and Tariffs
- Trade diversion occurs when an importing country lowers its tariff against a partner in a free trade area, and is considered undesirable.
- A decrease in tariff by an importing country against a partner in a free trade area can lead to trade diversion.
Explore the relationship between the median voter model and the Brexit vote in 2016, leading to an increase in Britain's average tariffs. Analyze the predictions of the model in relation to import tariffs on labor-intensive goods in capital-abundant countries.
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