the primary difference between a quota and a voluntary export restraint (ver) is that This is a topic that many people are looking for. thetruthaboutdow.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, thetruthaboutdow.org would like to introduce to you The Reagan-era VER (“Voluntary Export Restraint”) program. Following along are instructions in the video below:
“The oil crisis of 1979 80. The american auto producers suffered record losses as customers customers moved away from gas guzzlers toward more fuel efficient cars with declining market share us automakers asked congress to restrain imports in some way president ronald reagan asked the japanese automakers to limit exports of passenger cars to the united states this voluntary export restraints allowed. 17 million japanese cars into the us. Each year.
The calf was raised thereafter before the program was terminated by 1994. The effect on the sale of japanese cars of the var program was that it raised the price of japanese cars by about 1200. While reducing the quantity of japanese cars sold the net effect on japanese earnings. However was close to zero in other words.
The revenues earned were the same at the higher price as at the lower price. The effect on the sale of us cars. Is that the us managed to increase the quantity of cars sold at this higher price and us. Car sales and profits increased the cost of this program was clearly to american consumers who paid the higher price for smaller quantity of cards and certainly a smaller quantity of japanese cars with a larger quantity of american cars the cost american consumers was recorded at around 13 billion dollars measured in 1983 dollars the overall net welfare effect of the ber program was that the social welfare losses to the united states totaled around 3 billion dollars.
The japanese manufacturers agreed to the var. Program because they perceived that the likely alternative was a us. Imposed tariffs on japanese cars..
Which would have costs then more than 11 billion dollars over the period of the imposition. One key long run consequence of the var program was that any japanese cars produced in the us were excluded from the quarter. Limits so japanese automakers responded to this provision by investing heavily in us production facilities by 1990 honda nissan toyota mazda and mitsubishi all produced substantial numbers of cars in america the impact on us consumers of the var program is that it reduced the quantity of imports from q 1 q. 4 to q 2 q.
3 with a consumer surplus loss equivalent to a abcd the larger triangle of consumer surplus value under the demand curve and above the price of pw is now reduced to a smaller triangle equivalent to mn under the demand. Curve and above the price p prime which is the higher price that resulted from this smaller quantity of importance the impact on us producers is equivalent to the area a because us producers would have increased their quantity of cards from q1 to q2 and the profit or producer surplus above the supply curve would have increased from area ii. The area b. Plus.
A so that the change in the producer surplus value would have increased by a if the us government had imposed a tariff equivalent to the difference in the price between the original world market price and the new price after the var problem. The us government would have obtained revenues equivalent the area see on a quantity q. 2 q. 3.
Because the program allowed the japanese producers to retain the benefit of the higher price area c. Did not go to the us government. But effectively event to the japanese automakers..
So that g h. J. Was approximately equal to the area ch. So that g and j.
Would have been equivalent to the area of c. We can see now the overall effects. We have the producer surplus changing by a positive consumer surplus changing by a b c d. Negative.
So the net welfare effect with the ve. Our program is minus b c. D. And sumers loss plus producers gain.
If they were a tariff program in place. The government would have gotten area c. So that the consumer loss plus..
The producer gain plus. The government gain would have left the overall society. With a loss of b. D.
Triangles. B. D. Triangle.
B. Is referred to as a production or supply. Related. Distortion and triangle.
D. Is referred to as a demand or consumption related distortion. The production related distortion is due to the fact that we are paying a higher marginal cost to produce the product in the united states and that rising marginal costs of a product that could have been imported at a price pw..
Implies that the increased domestic production does not increase the revenues to the us producers as much as if we had just imported the quantity from zero to q2 and sold it at a price p prime then we would have earned the profit of a be the additional profit from increasing the domestic supply is a and it could have been a b. So area b. Is a production related distortion area d. The demand or consumption related distortion is a consequence of the smaller quantity of products that were being demanded at q3 and the higher price.
So consumers lost and because there s no surplus value associated with q3 q4. Because it no longer is consumed area d represents the lost consumer surplus value consumers did switch away from the quantity q. 3 q. 4.
So there s no value. And hence. There s no surplus value to be had so in summary. We have consumers losing abcd which is 13 billion dollars producers gaining a which is 10 billion dollars area c equivalent to g thus j to keep the japanese earnings constant the impact on the us government is in this analysis is zero because the government did not get to keep the revenues that would have been accruing to the government where there an imposition of a tariff and the deadweight losses are the production related distortion and the consumption related distortion and the ” .
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