Econ - International Trade

Answer the following questions.
1). A. Briefly define the following terms:

a). Tariff escalation refers to a scenario where governments increase tariffs along the processing chain by charging higher import duties on semi-processed goods than on raw material, and even higher duties on finished goods. Tariff escalation thus helps protect domestic manufacturing and processing industries and also discourages the development of processing activities in the raw materials’ countries of origin.
b). Optimal tariff rate refers to the level of tariff designed to optimize the welfare of a large country in terms of the prices and volumes of imported goods. In this case, large countries that import certain commodities in large volumes shift the economic burden of import tariff from their domestic consumers to the foreign suppliers and thus act monopsonies that control global prices. Small countries without much buying power have an optimal tariff rate of zero.
c). Voluntary export restraint (VER) refers to a self-imposed trade restriction on the volume of goods that an exporter can export to another nation. The exporter sets this limit.
d). Terms of trade effect (of subsidy, of tariff) refers to the effects of a change in the global price of a commodity (due to imposed tariff and subsidies) on the value of a country’s imports and exports as a percentage of GDP.
e). Harmonized System (HS) of Commodity Classification refers to the global nomenclature used to classify products for customs purposes. Participating nations use a six-digit code system to classify internationally traded goods.
f). Common external tariff is a form of trade tariff introduced among a group of nations that form a custom union. These countries have similar import quotas, customs duties, preferences and other non-tariff trade barriers for all goods that enter the trade area regardless of their point of entry within the area.
g). Dumping occurs when a company or country exports goods at lower prices in the foreign importing market compared to the price in the exporter’s domestic market.
h). Quota rent refers to a part of the loss of consumer surplus due to the imposition of an import quota that is transferred to the foreign supplier as extra profits i.e., economic rent received by the owner of commodities that have been subjected to a quota.
i). Offshoring refers to the relocation of some business operations from one country to another for reasons such as lower taxes and lower labor costs. Typically includes operations such as manufacturing.
j). Offshore outsourcing is the practice where a company hires a third-party company to perform work in a country other than the one where the hiring company usually conducts its operations. Operations that can be outsourced offshore include customer service call centers, manufacturing and accounting.
k). Export subsidy refers to a government policy designed to encourage domestic companies to export certain goods instead of selling them in the domestic market. Aspects of the policy might include direct payments to exporters, low-interest loans, tax relief and government financed international marketing and shipping.
l). Production subsidy is a government policy that encourages producers to increase their production output for certain goods by partially offsetting production costs. This way, the production of a certain commodity is increased so that the market can benefit without increasing the final price to consumers.
m). Export tariff is a tax imposed by a country on exports thus making them expensive. It is the opposite of an export subsidy since it encourages domestic consumption of domestically produced commodities.
n). Export quota a government restriction on the quantity of goods exported for a given period in order to keep the prices of such products low for domestic consumers.
o). Trade creation refers to the increase in trading activities or the economic welfare realized by a country from the joining, formation or expansion of a trading area/bloc. Trade creation arises due to reduced tariff barriers, free movement of goods and lower costs.

A3-01 (20 marks) Suppose the market demand can be separated into t...