Lecture 16 _Mar 16_ - Economics 100A Lecture #16: Tuesday,...

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1 Economics 100A Lecture #16: Tuesday, Mar. 16 1) Import restrictions: tariffs & quotas 2) Price ceilings and floors 3) General equilibrium effects 4) Summary of welfare analysis 5) Introduction to monopoly
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2 (1) Import restrictions Tariffs are taxes levied by a government on goods imported into the government's own country. sometimes are called “ duties Import quotas limit the total number of units of a good that can be imported into the country. Sometimes called “non-tariff barriers”
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3 Domestic & world market S dom (p) D dom (p) S world (p) P W Q 1 Q 4 Q p p d
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4 Tariff’s effects tariff protects U.S. producers from foreign competition larger tariff less is imported, hence domestic firms can charge higher prices consumers lose while domestic producers gain loss is less than from a complete ban on international trade
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5 Welfare analysis of import tariff p w Q 1 Q 4 t Q 2 Q 3 Q p S dom (p) D dom (p) S world (p) p w + t p d
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6 Quota’s effects Again, protects U.S. producers from foreign competition smaller quota less is imported, hence domestic firms can charge higher prices Consumers lose while domestic producers gain, but so too do some foreign producers depends on which foreign firms allowed to import
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7 Quota on foreign imports S dom (p) D dom (p) S world (p) p W Q 1 Q 4 Q p p* Q 3 = Q 1 +A A p d Q 2
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8 Quota on foreign imports S dom (p) D dom (p) S world (p) p W Q 1 Q 4 Q p p* A Q 3 Q 2
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9 Comparing a tariff to a quota Set quota to A = Q 3 -Q 2 , the equilibrium foreign imports under the import tariff Equilibrium domestic price would be the same The “world” deadweight loss would be the same also What is the difference? A quota generates no government revenue The domestic deadweight loss is larger under the quota than (comparable) tariff
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10 (2) Intro to price controls Administrative (non market) determination of price Ancient examples In Babylon 4,000 years ago the Code of Hammurabi included price control: "If a man hire a field-labourer, he shall give him eight gur of corn per annum; If a man hire a herdsman, he shall give him six gur of corn per annum." In 284 A.D., the Roman emperor Diocletian "fixed the maximum prices at which beef, grain, eggs, clothing and other articles could be sold, and prescribed the penalty of death for anyone who disposed of his wares at a higher figure."
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11 Price ceilings Reasons Prevent “price gouging” ( e.g., temporary shortages) Monopoly power over captive customers ( e.g., utilities) Modern examples Usury laws: max interest rate Rent control: maximum monthly rent U.S. price ceiling on gasoline in the 1970s long lines at gas stations and large DWL loss in consumer
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This note was uploaded on 03/18/2010 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at University of California, Berkeley.

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Lecture 16 _Mar 16_ - Economics 100A Lecture #16: Tuesday,...

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