international trade the market for cardamon in india
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International Trade The Market for Cardamon in India. Indian Market for Cardamom without Trade. Assume —. India is isolated from rest of the world and produces cardamom. The market for cardamom consists of the buyers and sellers in India. - PowerPoint PPT PresentationTRANSCRIPT
International Trade
The Market for Cardamon in India
Indian Market for Cardamom without Trade
India is isolated from rest of the world and produces cardamom.
Assume —
No one in India is allowed to import or export cardamom.
The market for cardamom consists of the buyers and sellers in India.
QC250 500
PC
SIndia
PIndia
The Market for Cardamom (C) in India
Qe
DIndia
QC
consumer surplus
producer surplus
e
With Free Trade, India would Import Cardamom
Without trade, PIndia > Pworld
The World Price and Comparative Advantage
Guatemala and other “rainforest” countries have a comparative advantage in the production of cardamom; India does not.
250 500
PC
SIndia
PIndia
The Market for Cardamom (C) in India
DIndia
QC
Ae
Consumer surplus before trade = A
ImportsProducer surplus before trade = B+C
PWorldC
B D
Consumption in India
Production in India
SWorld
250 500
PC
SIndia
PIndia
The Market for Cardamom (C) in India
DIndia
QC
Ae
Consumer surplus after trade = A+B+D
ImportsProducer surplus after = C
PWorldC
B D
Consumption in India
Production in India
SWorld
SIndia
PIndia
DIndia
QC
Ae
C PWorld
B
PC
No Trade
SIndia
PIndia
DIndia
QC
Ae
C PWorld
B
PC
Free Trade
SWorldD
Consumption & Production in India Consumption in IndiaProduction &
Imports
Winners and Losers from Trade in India
With Free Trade…Consumers are better off by
Farmers are worse off by
Society is better off by
B D
BD
Gains from Trade
With Free Trade…Consumers are better off by
Farmers are worse off by
Society is better off by
B D
BD
Gains from TradeTrade raises the economic well-being of the nation as a whole because the gains of consumers exceed the losses of producers.
“In India, Farmers in Debt Reach the Depths of Despair”
NY Times, 8/28/07
India Should (Re-)Impose Barriers to Trade
Policy Proposals to Aid…
The right of governments to raise tariffs on imports and discriminate in favor of their farmers and industries should be reinforced. —Christian Aid
Promote Freer Trade by Subsidies on cotton and other crops in the US and Europe
India Should Continue Lowering Trade Barriers But Help Losers:
its National Rural Employment Guarantee Act guarantees 100 days of daily-wage employment to all rural Indian families.
Farmers in Crisis
Chicago Tribune Editorial, June 20, 2005
Paying the Sugar Tax
“Sugar in the U.S. cost just under 22 cents a pound last week. Outside the U.S., the world market price for sugar was just under 9 cents a pound. There's nothing complicated about that math. Americans pay 13 cents more for a pound of sugar than anyone else does…. It is, in effect, a tax. You pay a 13-cent-per-pound sugar tax every time you buy a candy bar or a cake or anything
else that uses sugar. You pay that tax so that 6,000 sugar producers can continue to operate in a protected environment.”
MN Sugar BeetFL Sugar Cane
How does the government protect sugar cane and sugar beet farmers?
US Agribusiness
Europe Farmers
Sugar Quota limits the amount of foreign sugar that may imported into US.
Sugar Quota in 2005 2.5 billion pounds per year
SOURCE: Economic Research Service, US Dept of Agriculture www.ers.usda.gov/Briefing/Sugar/data.htm
SUS
SWorld
DUS
($ per lb)
Quantity of Sugar (billions of lbs per year)
PSugar
PNo Trade
PWorld = $0.09 per lb
PQuota = $0.22 per lb
Quota = 2.5 billion lbs
The US Sugar Market
$0.09
SUS
SWorld
DUS
Quantity of Sugar (billions of lbs per year)
PWorld = $0.09 per lb
PQuota = $0.22 per lb
Quota = 2.5 billion lbs
SUS + Quota
2.5 billion lbs
$0.09
$0.22
($ per lb)
PSugar
The US Sugar Market
Commodity 1990 2000 2004 2005
Sugar, Refined Cane and Beet 64.4 65.5 61.5 62.8
High-fructose corn syrup 49.6 62.6 59.2 59.0
[In pounds, retail weight, except as indicated]
Table 205. Per Capita Consumption of Major Food Commodities
SOURCE: Statistical Abstract of the United States, 2008
Table 2. Population
Year Population
2005 296,940
[In thousands]
Total Sugar Consumption = (Per capita Sugar Consumption)(Population)
= (62.8)(296,940,000)
= 18,647,832,000 ≈ 18.5 billion pounds per year
SUS
SWorld
DUS
Quantity of Sugar (billions of lbs per year)
= 18.5 billion lbsThe US Sugar Market
SUS + Quota
2.5 billion lbs
$0.09
$0.22
ConsumedQuotaQ
18.516.0
($ per lb)
PSugar
ConsumedTrade FreeQ
Academic Literature 0.35ˆd e
?QConsumedTrade Free
25 billion lbs per year
2/PP
PP
2/QQ
P%
Q%
FreeTradeQuota
FreeTradeQuota
DFreeTrade
DQuota
DFreeTrade
DQuota
D
de
Demand for sugar is
inelastic
2/09.0 0.2209.0 0.22
2/2518.52518.5
P%
Q% D
de
36.0839.0
299.0
was chosen so that the resultingConsumed
Trade FreeQ Hence,price elasticity was consistent with that found in the literature.
SUS
SWorld
DUS
Quantity of Sugar (billions of lbs per year)
SUS + Quota
2.5
$0.09
$0.22
18.516.0 25
Quota Free Trade
Consumer Surplus
Loss in CS due
to Quota= $2.8275 billion
($ per lb)
PSugar
SUS
SWorld
DUS
Quantity of Sugar (billions of lbs per year)
SUS + Quota
2.5
$0.09
$0.22
18.516.0 25
Quota Free Trade
Consumer Surplus
Loss in CS due
to Quota= $2.8275 billion every year
≈ Americans spend going to baseball games each year.
($ per lb)
PSugar
SUS
SWorld
DUS
Quantity of Sugar (billions of lbs per year)
SUS + Quota
2.5
$0.09
$0.22
18.516.0 25
Quota Free Trade
Producer Surplus
Gain in PS due to
Quota
($ per lb)
PSugar
SUS
SWorld
DUS
Quantity of Sugar (billions of lbs per year)
SUS + Quota
2.5
$0.09
$0.22
18.516.0 25
The loss to consumers exceeds the gain to producers by
DWL Transfer DWL
The quota blocks trades for which WTP > PWorld
($ per lb)
PSugar
SUS
SWorld
DUS
Quantity of Sugar (billions of lbs per year)
SUS + Quota
2.5
$0.09
$0.22
18.516.0 25
DWL Transfer DWL
Opp Cost of producing Sugar Cane in FL > PWorld
Owners of Quota Permits buy sugar for 9 cents and sell it for 22 cents, which transfers $ from consumers to permit owners.
($ per lb)
PSugar