| Jim Whitney | March 16, 2011 |
Ranking policy options
Names: ________________________ ________________________
________________________ ________________________
Situation:
You are hired as economic policy consultants by the government of
Taiwan, a small-country importer of personal computers.
The government's policy goal is to expand Taiwan's domestic production
of PCs to a target output level while minimizing the cost of the policy to Taiwan (in
terms of reduced national welfare).
Note: since Taiwan is a small country in the global PC market, there is
no concern that its trading partners will retaliate.
Task: Rank the following policy options from best (=1) to worst (=4) in terms of minimizing the national welfare cost of achieving Taiwan's policy goal:
| Rank | |||
| a. | import quota: | a quantitative restriction on the volume of permitted imports | |
| b. | production subsidy: | a government payment to producers for each unit of domestic production | |
| c. | tariff: | a tax on imports | |
| d. | voluntary export restraint (VER): | an negotiatied agreement whereby exporters restrict their export volume | |