Lecture 34 - Announcements There are a few unclaimed...

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Unformatted text preview: Announcements There are a few unclaimed iClicker numbers. Please check your iClicker score. I f you have a 0 and dont think you should, let me know. Reviews: 10:10 Thursday at 3 in McBr yde 100 9:05 next Tuesday at 4 in Surge 104b Finals: 9:05 Dec 16 th 10:05am 10:10 Dec 12 t h 1:05pm Office hours, W 2-4, Th 1-3, F 11-12, M 2-4, or by appt. Practice Qs for taxes and trade and MT3 up on 1 of 29 More announcements The final: 100 questions Cumulative Evenly weight ed throughout semest er 40% of final grade 2 of 29 3 of 29 TRADE BARRIERS: TARIFFS, EXPORT SUBSIDIES, AND QUOTAS protection The practice of shielding a sector of the economy from foreign competition. tariff A tax on imports. export subsidies Government payments made to domestic firms to encourage exports. quota A limit on the quantity of imports. other trade barriers - voluntary export restraints, technological barriers, etc. Trade Bar r iers: Tar iffs A tar iff is a tax placed on an impor ted good. Since it only applies t o goods produced by foreign producers, tar iffs hur t impor ts. First, lets recall how impor ts fit into what weve seen so far. Lets say we are talking about a countr y that is small enough that the decisions of the producers and consumers in that countr y have little or no effect on the world pr ice. We can draw domestic supply and demand, and at their intersection lies the equilibr ium pr ice and quantity that would 4 of 29 Trade Bar r iers: Tar iffs The case depicted here is one where the world pr ice is below the equilibr ium pr ice without trade. I mplications: Consumers buy more at this lower pr ice Domestic producers produce less at the lower pr ice The difference is made up in impor ts. Consumer sur plus increases, producer sur plus decreases, but overall social benefit has increased. 5 of 29 World Price Price Without Trade P Q Q D Q S IMPORTS Tar iffs Now lets add the tar iff the tar iff increases the pr ice of impor t ed goods, so it raises what we were calling the world pr ice. 6 of 29 World Price World Price + Tariff Price Without Trade A D B I F G C E H Qs Qs Qd Qd P Q Tar iffs A tar iff r aises the wor ld pr ice faced by domestic agents Domestic consumer s buy less - Qd to Qd Domestic pr oducer s pr oduce mor e - Qs to Qs (r emember they dont have to pay the tax or tar iff) I mpor ts decr ease - Wer e (Qd - Qs) now (Qd Qs) 7 of 29 World Price World Price + Tariff Price Without Trade A D B I F G C E H Qs Qs Qd Qd P Q Tar iffs Consumer Sur plus decr eases buy less at a higher pr ice Or iginally area ABC , now area AED Loss in consumer sur plus is DBEC Some of the decrease in consumer sur plus is passed on as pr oducer sur plus since pr ices r ose (this is good for pr oducer s) - Area BI H D 8 of 29 World Price World Price + Tariff Price Without Trade A D B I F G C E H Qs Qs Qd Qd P Q Tar iffs...
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Lecture 34 - Announcements There are a few unclaimed...

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