1.1 Assume that Vietnam is a large open economy that can affect the world price of a product that it exports or imports. Answer the following questions given that Vietnam has decided to impose tariff on pork meat.
Using a graphical work analyze the changes in the consumer surplus (CS), producer surplus (PS), and the tariff revenue (TR) that are caused by imposing the tariff in Vietnam. In the analysis you must include the “terms of trade” effect. Hand-drawn graphs are allowed.
What would happen to the CS, PS and TR if the government adopts import quotas by issuing import licenses? Assume two cases to explain the change.
When the licenses are given to Vietnamese.
When the licenses are given to foreign pork meat exporters.
Question 1 _ Part B (10 points)
Now assume that Vietnam is a “small’ open economy and imposes the same tariff to Part A 1). How would the size of the “terms of trade” effect change?
It is said that “zero tariff would be the optimum tariff rate for a small open economy”. Discuss this statement by comparing the size of the “terms of trade” effect from Part A 1) and Part B 3) above.
Question 1 _ Part C (10 points)
Assume that TCT Pork Meat is a monopolist sausage producer in Vietnam. Thanks to the EUVNFTA, a German sausage producer, Deutsche Wurst, exports its products to Vietnam, which transforms the sausage market into a duopoly market. How would “setting a quota” for German sausages change the CS, the PS and the TR in Vietnam? Your answer must include the followings.
a graphical analysis using the Cournot model
an analysis using the Bertrand model (Krishna with simultaneous move assumption)
a comparison of the two models.
Question 1 _ Part D
Based on analysis in Part A) and B), imposing importing tariffs or setting import quotas does not benefit consumers in the importing country or it is not sure whether it benefits the national economy. Discuss how imposing tariffs (or setting import quotas) is likely to benefit the national economy if it is used as an infant industry protection method. A key concept that you must consider is the ‘learning effect’.
It is argued that offshoring / outsourcing resulting from expanding the scope of global value chains has affected the income inequality in developing and developed economies. This question requires you to assess the Feenstra-Hanson model (FHM).
Summaries the FHM that you learned in class and explain the implication of this model for income inequality. This question does not require a graphical analysis.
Present an empirical analysis to prove the FHM. Assume that any product you choose is composed through production processes – high-skill intensive, medium-skill intensive and low-skill intensive.
Select one product that Vietnam exports under the close collaboration with a multinational corporation (MNC); then provide a couple of example tasks that belong to high-skilled and low-skilled intensive production process in the production of your chosen product; and then state which type of production process is carried out in Vietnam.
Collect minimum wage rates and the Gini index in Vietnam and in the country of the MNC’s headquarter you chose in Part 2.1)
Evaluate the implication of the FHM by using the data and information you collected from Part 2.1) and 2.2).
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