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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?
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