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Chapter 21: Q.9 (page 522)

Explain how predatory pricing could be a motivation for dumping.

Short Answer

Expert verified

Selling products at a cheap rate is how predatory pricing could be a motivation for dumping.

Step by step solution

01

Step 1. Meaning 

Predatory pricing - predatory pricing is lowering the price of the product in the least to take maximum market share.

Dumping -Selling goods at an artificial price internationally even below the cost of production.

02

Step 2. Explanation

Here, domestic firms have to match the low prices of imported goods to be competitive, here internally imported products sell goods at lower prices (prices below the cost of production) to take maximum market share and bear the short term losses for monopoly and later rise the prices for long term profits.

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Most popular questions from this chapter

If opening up to free trade would benefit a nation, then why do nations not just eliminate their trade barriers, and not bother with international trade negotiations?

How does international trade affect the working conditions of low-income countries?

Explain the logic behind the “race to the bottom” argument and the likely reason it has not occurred.

Who gains and who loses from trade?

The country of Pepperland exports steel to the Land of Submarines. Information for the quantity demanded (Qd) and quantity supplied (Qs) in each country, in a world without trade, are given in Table 21.6 and Table 21.7.

a. What would be the equilibrium price and quantity in each country in a world without trade? How can you tell?

b. What would be the equilibrium price and quantity in each country if trade is allowed to occur? How can you tell?

c. Sketch two supply and demand diagrams, one for each country, in the situation before trade.

d. On those diagrams, show the equilibrium price and the levels of exports and imports in the world after trade.

e. If the Land of Submarines imposes an antidumping import quota of 30, explain in general terms whether it will benefit or injure consumers and producers in each country.

f. Does your general answer change if the Land of Submarines imposes an import quota of 70?
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