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International Trade The Market for Cardamon in India.

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Presentation on theme: "International Trade The Market for Cardamon in India."— Presentation transcript:

1 International Trade The Market for Cardamon in India

2 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.

3 QCQC PCPC S India P India The Market for Cardamom (C) in India Q e D India QCQC consumer surplus producer surplus e

4 With Free Trade, India would Import Cardamom Without trade, P India > P world The World Price and Comparative Advantage Guatemala and other “rainforest” countries have a comparative advantage in the production of cardamom; India does not.

5 PCPC S India P India The Market for Cardamom (C) in India D India QCQC A e Consumer surplus before trade = A Imports Producer surplus before trade = B+C P World C B D Consumption in India Production in India S World

6 PCPC S India P India The Market for Cardamom (C) in India D India QCQC A e Consumer surplus after trade = A+B+D Imports Producer surplus after = C P World C B D Consumption in India Production in India S World

7 S India P India D India QCQC A e C P World B PCPC No Trade S India P India D India QCQC A e C P World B PCPC Free Trade S World D Consumption & Production in IndiaConsumption 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 BD B D Gains from Trade

8 With Free Trade… Consumers are better off by Farmers are worse off by Society is better off by BD B D Gains from Trade Trade 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

9 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

10 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

11 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

12 S US S World D US ($ per lb) Quantity of Sugar (billions of lbs per year) P Sugar P No Trade P World = $0.09 per lb P Quota = $0.22 per lb Quota = 2.5 billion lbs The US Sugar Market $0.09

13 S US S World D US Quantity of Sugar (billions of lbs per year) P World = $0.09 per lb P Quota = $0.22 per lb Quota = 2.5 billion lbs S US + Quota 2.5 billion lbs $0.09 $0.22 ($ per lb) P Sugar The US Sugar Market

14 Commodity Sugar, Refined Cane and Beet High-fructose corn syrup [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 YearPopulation ,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

15 S US S World D US Quantity of Sugar (billions of lbs per year) = 18.5 billion lbs The US Sugar Market S US + Quota 2.5 billion lbs $0.09 $ ($ per lb) P Sugar

16 Academic Literature   25 billion lbs per year Demand for sugar is inelastic

17 was chosen so that the resulting price elasticity was consistent with that found in the literature.

18 S US S World D US Quantity of Sugar (billions of lbs per year) S US + Quota 2.5 $0.09 $ Quota Free Trade Consumer Surplus Loss in CS due to Quota = $ billion ($ per lb) P Sugar

19 S US S World D US Quantity of Sugar (billions of lbs per year) S US + Quota 2.5 $0.09 $ Quota Free Trade Consumer Surplus Loss in CS due to Quota = $ billion every year ≈ Americans spend going to baseball games each year. ($ per lb) P Sugar

20 S US S World D US Quantity of Sugar (billions of lbs per year) S US + Quota 2.5 $0.09 $ Quota Free Trade Producer Surplus Gain in PS due to Quota ($ per lb) P Sugar

21 S US S World D US Quantity of Sugar (billions of lbs per year) S US + Quota 2.5 $0.09 $ The loss to consumers exceeds the gain to producers by DWL Transfer DWL The quota blocks trades for which WTP > P World ($ per lb) P Sugar

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23 S US S World D US Quantity of Sugar (billions of lbs per year) S US + Quota 2.5 $0.09 $ DWL Transfer DWL Opp Cost of producing Sugar Cane in FL > P World Owners of Quota Permits  buy sugar for 9 cents and sell it for 22 cents, which transfers $ from consumers to permit owners. ($ per lb) P Sugar


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