978-0078021770 Chapter 11 Solution Manual

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Suggested answers to case study discussion questions

Antidumping in Action: American steel firmsreacted to increasing steel imports in 2013 by

filing a number of new dumping cases. There are at least two reasons that most of these cases

would not lead to the imposition of antidumping duties. First, the American steel firms may have

filed these cases more as way of harassing foreign steel exporters, a way to send a message to

them to restrain their exports. With the threat of possible antidumping duties, the foreign firms

decide to reduce their exports and to raise their prices, and the American firms may then

withdraw their cases. Or, if the cases proceed to hearings, they turn out to be weak, and the U.S.

government fails to find either dumping or injury, so there are no duties imposed. Second, there

is a specific challenge for steel dumping cases filed in 2013. U.S. demand for steel was strong.

The U.S. International Trade Commission, the U.S. government body that examines injury, is

reasonably strict in the standards that it imposes for this determination. Even with rising imports,

American firms were selling a lot of steel. For many steel products that were in strong demand, it

may not be possible for American steel firms to show sufficient injury from the allegedly

dumped imports.

Agriculture is Amazing: A high tariff or a zero quota can reduce imports of butter to zero. But,

the high tariff or zero quota cannot turn butter into an EU export product, because production

costs behind the import barrier will be too high to export successfully into foreign

markets.Instead, the country will be at the no-trade national equilibrium, with a no-trade

domestic price that is well above the world price.A price support in which the government

purchases any production that is not sold to private buyers can turn butter into an EU export

product. If the price support is set above the no-trade national equilibrium price, then there will

be excess domestic supply at that price (domestic quantity supplied at the high support price is

greater than domestic quantity demanded at that high price). The government then must decide

what to do with the butter that it has purchased. It may decide to regain some of the money spent

on the butter purchases by selling to foreign buyers at the world price, and the EU becomes an

exporter of butter. The government makes a loss on these sales (it buysbutter at a high price from

domestic producers and resellsthe butter at a low price to foreign buyers). That is, the

government is effectively subsidizing these butter exports.

Suggested answers to end of chapter questions and problems

1. One definition of dumping is selling an export at a price lower than the price charged to

domestic buyers of the product within the exporting country. This definition emphasizes

2. Disagree. The injury test used by the U.S. government in dumping cases solely examines

whether or not U.S. producers were hurt by the imports that were dumped by the foreign

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3. Tipper Laurie, because its at-brewery price is lower for exports to the United States than

4. Persistent dumping is a situation in which the exporting firm uses international price

discrimination by setting a higher price in its home market and charging a lower price to

buyers in the foreign market. The price discrimination is used to maximize total

5. The objective of the revision is to make antidumping policy contribute to U.S. national

well-being. The policy should be targeted toward addressing predatory dumping and

aggressive cyclical dumping. It should take into account domestic consumer interests as

6. A countervailing duty is a tariff imposed to offset the amount by which a foreign

7. The $5 export subsidy would lower the price charged to Canadian buyers, but the

$5 countervailing duty would raise the price back up. If Canadian buyers are paying the

any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

8. a. With free trade, price is P0 and the quantity exported and imported is M0. The export

subsidy “artificially” shifts the export supply curve down to SX. (The original SX curve

b. The countervailing duty returns the market to P0 and M0. This is good for the world,

because the marginal resource cost of the last unit exported (shown by the height of SX at

M0) just equals the marginal benefit of that unit to the buyer (shown by the height of DMat

9. a. In this case, Airbus would gain by producing even without government intervention.

Airbus would gain 5 if Boeing did produce and 100 if Boeing did not produce. There

would be no reason for European governments to subsidize Airbus.

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b. In this case, Boeing is sure to produce because Boeing gains whether or not Airbus

produces. The EU should recognize this. With Boeing producing, the net gain for Airbus

10. If the world price declines from $100 to $90, the revenue per unit exported declines from

$120 to $110, which is also the new price paid by domestic consumers of the product.

Because of the decline in revenue per unit, domestic quantity produced declines from 190

million to 175 million. Because of the decline in the domestic price, domestic quantity

EFG

i n i t i a l w o r l d p r i c e

P r i c e

Q u a n t i t y

1 7 5

5 0

9 0

1 2 0

1 1 0

1 0 0

6 0 1 9 0

n e w w o r l d p r i c e

12. One way is to say that most actual and potential export industries are highly competitive.

In this case, export subsidies distort resource allocation within the economy, leading to

overproduction of the exportable goods. The export subsidies bring a national net loss, as

shown in Figures 11.3, 11.4, and 11.5. The counter to the infant industry argument is that

in most cases the infant fails to grow up, so the country then faces the choice of whether

or not to provide ongoing assistance to a high-cost, uncompetitive industry.

any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.