Elgar original reference
Edited by William A. Kerr and James D. Gaisford
Chapter 16: Trade Distortion: Border Measures versus Domestic Support
James Gaisford Introduction Governments intervene in markets in wide-ranging ways and most of these interventions, either by design or accident, aﬀect international trade. This chapter provides an overview and primer on how two broad types of policy intervention aﬀect national and international markets. First, we analyze border or international trade measures such as import tariﬀs and export subsidies, which directly alter or distort international trade ﬂows. Second, we investigate domestic support measures such as production subsidies, which directly aﬀect ﬁrms on the supply side of the market and indirectly aﬀect trade ﬂows. Subsequent chapters provide a detailed treatment of many types of border measures and domestic support measures. For simplicity, we focus on competitive markets although most of the key insights that are developed carry over to more complex situations with imperfect competition. For ease of exposition, we adopt a single market or partial equilibrium approach where the international market that we examine is assumed to have a negligible impact on the rest of the world economy.1 Policy interventions in markets tend to have pervasive eﬀects on the consumption and production decisions of households and ﬁrms. Trade ﬂows, whether imports or exports, subsequently will be aﬀected. Rational consumers will choose the quantities they consume such that the additional or marginal beneﬁt is equal to the price. Consequently, a policy-induced increase in the price facing consumers will necessarily reduce the quantities that consumers demand, and ultimately, either reduce imports or increase exports as...
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