Answer to Question #264091 in Macroeconomics for lebo

Question

) Discuss the differences that exist between quotas and Volunteer Export Restraints (10 Marks)

c) Sate and explain the different types of dumping (9 Marks)

Answer 1

 Discuss the differences that exist between quotas and Volunteer Export Restraints

a) The importing country administers a quota while the exporting country administers a voluntary export restraint.

b) A quota has deadweight losses that are brought about by market inefficiency when supply and demand are out of equilibrium while a voluntary export restraint has no deadweight losses.

c) A quota affects a country's imports, while a voluntary export restraint affects its exports.

State and explain the different types of dumping

1. Sporadic dumping

It is a type of dumping where companies dump excess unsold inventories to avoid price wars in the home market and preserve their competitive place. This is done by destroying excess supplies or exporting them to a foreign market where the products are not sold.

 

2. Predatory dumping

This type of dumping, unlike sporadic dumping which is occasional, is permanent. It involves the sale of goods in a foreign market at a lower price than the home market. Predatory dumping is done to gain access to the foreign market and eliminate possible competition. It creates a monopoly in the market.

 

3. Persistent dumping

Persistent dumping refers to When a country consistently sells products at a lower price in the foreign market than the local prices. It happens when there is a constant demand for the product in the foreign market.

 

4. Reverse dumping

Reverse dumping happens when the demand for the product in the foreign market is less elastic. It implies that price changes does not impact demand. Therefore, the company can charge a higher price in the foreign market and a lower price in the local market.