International Trade - Theory and Policy, 2010a

An import tariff applied on an imported product is equivalent in its economic effects to a combination of
a domestic production subsidy and a domestic consumption tax of equal value applied on the same
product.
EXERCISE
1. Jeopardy Questions. As in the popular television game show, you are given an answer to a
question and you must respond with the question. For example, if the answer is “a tax on
imports,” then the correct question is “What is a tariff?”
1. The term for the full price received by producers per unit of a good sold inclusive of
any taxes or subsidies.
2. The term for the full price that consumers of a good pay to acquire a good inclusive of any
taxes or subsidies.
3. The term for a government policy that directly affects trade between countries.
4. The term for a government policy that directly affects domestic economic activity.
5. Of domestic policy or trade policy, this describes an import quota.
6. Of domestic policy or trade policy, this describes a 5 percent state sales tax collected on all
retail purchases.
7. Of domestic policy or trade policy, this describes a regulation on fuel efficiency standards on
all automobiles sold in the United States.
8.2 Domestic Production Subsidies
LEARNING OBJECTIVES
1. Distinguish domestic production subsidies from export policies.
2. Describe the motivations for government use of production subsidies.
Saylor URL: http://www.saylor.org/books
Saylor.org
413