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 don’t 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, let’s recall how impor ts fit into what we’ve seen so far. • Let’s 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 let’s 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 Q’s Q’d 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 Q’d • Domestic pr oducer s pr oduce mor e - Qs to Q’s (r emember they don’t have to pay the tax or tar iff) • I mpor ts decr ease - Wer e (Qd - Qs) now (Q’d – Q’s) 7 of 29 World Price World Price + Tariff Price Without Trade A D B I F G C E H Qs Q’s Q’d 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 Q’s Q’d Qd P Q Tar iffs...
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This note was uploaded on 06/21/2009 for the course ECON 2005 taught by Professor Zirkle during the Fall '07 term at Virginia Tech.

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

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