Chapter 9

Chapter 9 - * results in two DEADWEIGHTLOSS triangles (one...

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Chapter 9 Study guide: What happens when world P > domestic P? *illustrate change in consumer/supplier surplus + price *draw out trade effects on graph What does the import/export status indicate of a country? What is surplus an indicator of? Why does deadweight loss exist? What is the main effect(s) of tariff? On consumer/supplier surplus+ price + quantity supplied/tax Effects of restricting trade?
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Chapter 9 Econ Notes: October 15, 2009 World P> Domestic P = export (indicator of comparative advantage) = decrease in consumer surplus due to increase of price = increase of supply surplus Domestic P> world P = import = consumer surplus goes up since price is now lower = producer surplus goes down *assumption: the country is a p taker *in both cases, consumer/supplier surplus changes, but total surplus goes up = better overall society welfare Tariff : tax on imported goods - raises price of imported good = decrease in consumer surplus/increase in producer
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Unformatted text preview: * results in two DEADWEIGHTLOSS triangles (one from overproduction of the product/ underconsumption of the product) due to the consumer surplus that wont be realized distorts incentive/ inefficient allocation- tax revenue = change in price * (quantity demanded w/ tariff quantity supplied w/tariff) effect is to reduce import and move domestic trade closer to equilibrium price without trade Tariff raises quantity of domestic demand due to increase of price of substitute Arguments for restricting trade: 1) National security (overreliance on other countries/sufficient independence for war etc.) 2) Domestic job loss 3) Infant industry (Koreas LG) to help them get started w/ less competition 4) Unfair competition (subsidy by gov on a product 5) Tariff as bargaining chip ( Ill remove this tax if you remove that tax.) negative externalities? Ex. pollution...
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This note was uploaded on 04/02/2010 for the course AGEC 200 taught by Professor Anwarnaseem during the Winter '10 term at McGill.

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Chapter 9 - * results in two DEADWEIGHTLOSS triangles (one...

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