Lecture 5

Lecture 5 - ECN 211 Macroeconomic Principles L28 Tariffs....

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Unformatted text preview: ECN 211 Macroeconomic Principles L28 Tariffs. Tools of Trade Policy Tariffs When a government imposes a tariff, the price paid by consumers and the quantity of domestic production increase Results in consumer surplus being transferred Tools of Trade Policy Tariffs When a government imposes a tariff, the price paid by consumers and the quantity of domestic production increase Results in consumer surplus being transferred to the government and domestic producers. Protectionism: Introducing a Tariff $ P NT P W Q 1 Q 2 Q 3 A B C D E Q 4 Q 5 S dom D dom Wheat P 1 F G H I Outcome with a Tariff Tariff: Suppose a tariff of (P 1- P W ) is introduced . Price in the domestic market is now P 1 - Q 5 is the domestic consumption - Q 4 is domestically supplied (Q 5 - Q 4 ) is now imported Welfare Compared to Free Trade. Consumer surplus falls from Domestic Producer surplus increases from Tax revenue is HFGI Welfare loss of FHD and GEI Foreign producers are...
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Lecture 5 - ECN 211 Macroeconomic Principles L28 Tariffs....

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