Ag Policy, Lecture 13 Knutson 6th Edition, Chapter 5

1
Ag Policy, Lecture 13 Knutson 6th Edition,
Chapter 5

• Trade Tools
• Import Quota
• Import Tariff
• Export Subsidy

2
An Import Quota by Importing Country
Exporting Country
Trade Importing Country
Quota

S
S
Excess Supply
World Price
Excess Demand
D
D
Q/yr
Quantity Traded is reduced
3
An Import Quota by Importing Country
Exporting Country
Trade Importing Country
Quota

S
S
Excess Supply
World Price
Excess Demand
D
D
Q/yr
Quantity Traded is reducedPrice in the
Importing Country is raised
4
An Import Quota by Importing Country
Exporting Country
Trade Importing Country
Quota

S
S
Excess Supply
World Price
Excess Demand
D
D
Q/yr
Quantity Traded is reducedPrice in the
Importing Country is raisedPrice in the
Exporting Country is reduced
5
A Tariff by Importing Country
Exporting Country
Trade Importing Country

S
S
Excess Supply
World Price
Excess Demand
D
D
Q/yr
Excess Supply is raised by the amount of the
tariff
6
A Tariff by Importing Country
Exporting Country
Trade Importing Country

S
S
Excess Supply
World Price
Excess Demand
D
D
Q/yr
Excess Supply is raised by the amount of the
tariffQuantity Traded is reduced
7
A Tariff by Importing Country
Exporting Country
Trade Importing Country

S
S
Excess Supply
World Price
Excess Demand
D
D
Q/yr
Excess Supply is raised by the amount of the
tariffQuantity Traded is reducedPrice in the
Importing Country is raisedPrice in the
Exporting Country is reduced
8
An Export Subsidy by the Exporting Country
Exporting Country
Trade Importing Country

S
S
Excess Supply
World Price
Excess Demand
D
D
Q/yr
Excess Demand is increased by the
subsidyQuantity Traded is increased
9
An Export Subsidy by the Exporting Country
Exporting Country
Trade Importing Country

S
S
Excess Supply
World Price
Excess Demand
D
D
Q/yr
Excess Demand is increased by the
subsidyQuantity Traded is increasedPrice in
the Importing Country is reduced
10
An Export Subsidy by the Exporting Country
Exporting Country
Trade Importing Country

S
S
Excess Supply
World Price
Excess Demand
D
D
Q/yr
Excess Demand is increased by the
subsidyQuantity Traded is increasedPrice in
the Importing Country is reducedPrice in the
Exporting Country is raised
11
Impact of Exchange Rates

• What does it mean when currency exchange rates
  rise fall.
• What happens to
• Excess Supply
• Excess Demand
• Quantity Traded

12
Lecture 13, Wrap up

• Can you draw each of the three trade tools?
• Then Identify
• New Price in each country
• New Quantity traded
• New Quantity supplied and demanded in exporting
  country
• New Quantity supplied and demanded in importing
  country
• Can you explain the impact of exchange rates?