Posted: April 12th, 2015

1. Country A is a small-country exporter of good X.

1.    Country A is a small-country exporter of good X.
.    a)  Assume that country A’s government subsidizes exports of good X by an amount s per unit exported. No other exporting-country governments subsidize their firms’ exports. Illustrate graphically the subsidy’s effects on country A’s X market. Explain why you drew the graph you did. Briefly describe the subsidy’s effects.
.    b)  ContinuetoassumethatcountryA’sgovernmentsubsidizesexportsofgoodXbyan amount s per unit exported. But now all other exporting-country governments subsidize their firms’ exports as well, and by the same amount. Illustrate the subsidy’s effect on country A’s X market. Explain why you drew the graph as you did. Briefly describe the subsidy’s effects.
.    c)  How will each of the following domestic interest groups in country A be affected when other exporting countries begin to subsidize their X exports? (i) X Producers; (ii) X consumers; (iii) taxpayers.
2.    This question asks you to analyze a dispute between the United States and the European Union over trade in oilseeds. Oilseeds are agricultural crops, including soybeans and sunflowers, whose seeds produce edible oils. To keep the analysis simple, you may assume that the United States and the European Union are small countries in the oilseeds market.
.    a)  Prior to 1962, the members of the European Union (then the European Economic Community) imposed import tariffs on oilseeds. In 1962, as part of the Kennedy Round of GATT negotiations, the EU agreed to reduce those tariffs to zero. Illustrate graphically the effect of the elimination of the import tariff in the EU’s oilseed market. Explain the effects on European oilseed production, consumption, price, and imports.
.    b)  Aftereliminatingtheimporttariffonoilseeds,theEUbeganaproductionsubsidyfor oilseed producers. Illustrate the effect of such a subsidy graphically. Explain the subsidy’s effects on European production, consumption, price, and imports.
.    c)  How do the distributional effects within Europe differ for the tariff in part a) and the subsidy in part b)? Who gains and who loses in each case?
d) U.S.oilseedproducersclaimedthattheEuropeanproductionsubsidynegatedthe effect of the EU’s earlier elimination of its import tariff. U.S. producers also claimed that the production subsidy encouraged European oilseed production and limited access to the EU market by non-EU oilseed producers. In what sense were the U.S. producers’ claims correct and/or incorrect? Explain.
3.    What are the five levels, or stages, of economic integration? What are some of the benefits and costs of moving from each state to the next?
4.    Suppose you are an economic consultant to a centrally planned economy about to embark on transition to a market-oriented economic system. Briefly explain at least three ways that opening international trade might contribute to success.