Monopoly and Monopsony Power of Trade Effects of Tariff

Monopoly and Monopsony Power of Trade Effects of Tariff

General approach

  • small countries (Price Taker Country) Monopoly and Monopsony Power
  • Large countries (Price Maker Countries)

Monopoly Power

The small country has a very small share in the total supply of the particular commodity in the international market. So she is not in the position to change terms of trade or international price.

Monopsony Power

The small country has a very small portion of the total demand for a particular commodity in the international market. So she is not in the position to change in demand.

Effect on domestic price

Cloth (M)        Food (X)         Ratio

After tariff                               50$                 1$                    5:1

Tariff impose                         60$                 1$                    6:1

Effect on Production

Effect of Production diagram
Effect of Production diagram

ST = Value of Production is decreased from MN

OF = Produce           OF’ = Consume        OC = Produce           OC’ = Consume

After tariff       3- Consumption effect

OC” consume

Monopoly and Monopsony Power of Trade Effects of Tariff

Consumption Effect

 

Consumption effect diagram
Consumption effect diagram

Before Tariff  {Production 50 }

{Consumption 80 } =          } 30

After Tariff     {Production  60}

{Consumption 70} =          }10

  1. Price effect
  2. Production effect / Productive effect
  3. The effect upon the value of production (at world price)
  4. Consumption effect
  5. Tariff Revenue
  6. The effect upon the volume of M. Trade
  7. Welfare effect
  8. ToT effect

If importable goods are normal then P (up) C (down) volume (down)

If importable goods are inferior then P (up) C (down) volume (down)

Normal goods consumption after tariff price is

P (up)             C (down)        Volume

30                    80                    50

40                    60                    20

Inferior goods consumption after tariff price is

P (up)             C (down)        Volume

30                    80                    50

40                    70                    30

In the case of a large country

Growth is neutral

growth in neutral diagram
growth in the neutral diagram

 

MX.M’X’         =          Neutral Trade

RN                  =          Anti-trade

NL                   =          Pro-trade

LX’                  =          ultra-pro trade

RM’                 =          ultra-anti trade

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