Essay about Economic Integration

2368 Words Oct 29th, 2014 10 Pages
This discussion focusses on how particular types of commodity programs are affected by opening up international markets.the impacts of policies such as price supports, marketing quotas and direct payment programs may be affected by free trade. In this discussion i analyze the effects of a free trade agreement on welfare, budget costs, and other policy objectives under a variety of stylized commodity programs (as in McCalla and Josling,
1985). These programs are examined using a series of figures that illustrate the economic
…show more content…
Autarky price in the home country is determined by the intersection of the subsidy-included supply curve Shv with Dh. At this point, production is q h consumer price is p h, and producer price is Phv +v.

Figure 1. Production Subsidy (Case 1)
Now let us open the border and allow imports. Since imports from the foreign country to the home country must compete with the consumer price in the home country, the effect of free trade upon the autarky equilibrium depends upon the sign of the excess supply Ef, at Phv. In the first case illustrated, the production subsidy v has depressed the home consumer price so much that the foreign country would actually be an importer if the border was opened (phv < Pa). In this case, opening the border places no direct pressure on the operation of the domestic program in the home country. If exports from the home country to foreign market were allowed with no complaint, the effective demand in the home country would be Dh + Ev. The price to consumers in the home market would rise and the quantity consumed would rise to include exports. However, since pv is below cost of production, trade flowing in this direction could be ruled as dumping and subject to import restrictions in the foreign country. Assuming that the countervailing duties imply no exports from home to fbreign, "free trade" will have

Related Documents