e100_winter2010_lecture13_topost

e100_winter2010_lecture13_topost - Trade & Prices: Import...

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Trade & Prices: Import Quotas & Tariffs • Government often responds to competition from international firms/countries to alter domestic prices of goods • Protect jobs? Are US consumers/producers better off? • Issue arises when P w < P US
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Import Quota to Eliminate Imports P Q D Pw P US Qs Q0 Qd S (domestic)
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• If consumers can purchase at Pw, will demand Qd – US producers supply Qs, Import (Qd-Qs) • If US limits imports (to eliminate), P will rise to P US • Consumers are worse off
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Import Quota to Eliminate Imports P Q D Pw P US Qs Q0 Qd S (domestic) Reduction in CS from import quota (entire area outlined in green)
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Import Quota to Eliminate Imports P Q D Pw P US Qs Q0 Qd S (domestic) Gain in PS from import quota (entire area outlined in blue)
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Import Quota to Eliminate Imports P Q D Pw P US Qs Q0 Qd S (domestic) Deadweight loss is Gain (to producers) – Loss (to consumers) (RED)
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• Can also eliminate imports with tariff (tax on imported goods) at least as large as (Pw- Pus) • Will have exact same effects as import elimination through quotas
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Tariff to reduce (not eliminate) imports P Q D Pw P US Qs Q0 Qd S (domestic) Pw + t Qs’ Qd’
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Monopoly • A single firm supplies all of the output in the industry (no free entry of firms) • Reasons for monopoly: – Control of input or technology – Govt licensing/restrictions – Generally, any barrier to entry
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How does a monopolist maximize profits? • Intuition same as under perfect competition – marginal benefit from last unit sold is equal to marginal cost of producing that unit • If MB > MC, could expand output and do better If MC > MB could reduce output and do better (reduce losses)
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This note was uploaded on 02/27/2010 for the course ECN 40279 taught by Professor Annstevens during the Spring '10 term at UC Davis.

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e100_winter2010_lecture13_topost - Trade & Prices: Import...

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