1. Multi-Market Analysis by Alan V. Deardorff University of Michigan 2016
PubPol/Econ 541
Multi-Market Analysis by Alan V. Deardorff University of Michigan 2016

2. Outline Large country tariff
Differentiated-Product Import, Small Country
Import of Final Good and Input to Its Production, Small Country
Tariff on Imports from One Country but Not Another

3. Recall: Small-Country Tariff
Figure 1
Tariff in a Small Country on a Homogeneous Good
Domestic Market a b d c
Welfare Effects of Tariff:
Dom sup’s +a
Dom dem’s –(a+b+c+d)
Dom gov’t +c
Dom cty –(b+d)

4. Outline Large country tariff
Differentiated-Product Import, Small Country
Import of Final Good and Input to Its Production, Small Country
Tariff on Imports from One Country but Not Another

5. Recall: Large-Country Tariff
Domestic Market
Foreign Market a b c d e g f h i
Welfare Effects of Tariff:
Dom sup’s +a
Dom dem’s –(a+b+c+d)
Dom gov’t (c+e)
Dom cty e–(b+d)
For sup’s –(f+g+h+i)
For dem’s +f
For gov’t 0
For cty –(g+h+i)
World –(b+d+g+i)
Figure 2
Tariff in a Large Country (“Domestic”) on a Homogeneous Good

6. Recall: Large-Country Tariff
Home Country’s Market for Imports
Welfare Effects of Tariff:
Dom pvt –(a+b)
Dom gov’t +(a+c)
Dom cty +c–b
For pvt –(c+d)
World –(b+d) a b c d
Figure 3
Tariff on Imports by a Large Country

7. Outline Large country tariff
Differentiated-Product Import, Small Country
Import of Final Good and Input to Its Production, Small Country
Tariff on Imports from One Country but Not Another

8. Differentiated-Product Import, Small Country
Domestic Good
Import b a f c h d e g
Welfare Effects of Tariff:
Dom sup’s (a+b)
Dom dem’s –(a+b+c+d)
& –(e+g)
Dom gov’t (e+f)
Dom cty –(c+d+g–f)
But (c+d) = (f+h)
(Why? Trust me.) So
Dom cty –(f+h+g–f)
= – (h+g)
Figure 4
Tariff on Imported Imperfect Substitute for Domestic Good

9. Outline Large country tariff
Differentiated-Product Import, Small Country
Import of Final Good and Input to Its Production, Small Country
Tariff on Imports from One Country but Not Another

10. Import of Final Good and Input to Its Production
Imported Input a b c d e f
Welfare Effects of Input Tariff:
Dom sup’s a
Dom dem’s –(a+b+c)
& –(d+e+f)
Dom gov’t d
Dom cty –(b+c+e+f)
Figure 5
Tariff on Imported Input to Nontraded Final Good Production

11. Outline Large country tariff
Differentiated-Product Import, Small Country
Import of Final Good and Input to Its Production, Small Country
Tariff on Imports from One Country but Not Another

12. Tariff on One Country but Not Another
Imports from Country B
Imports from Country C a b
Welfare Effects of Tariff on B:
Dom pvt –(a+b)
Dom gov’t +a
Dom cty –b
Figure 6
Tariff on Imports from Country B but not from Country C