Econ 101 Winter 2010 Lecture 14

Econ 101 Winter 2010 Lecture 14 - Click to edit Master...

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Unformatted text preview: Click to edit Master subtitle style Lecture 1 Economics 101 Microeconomics University of Michigan Winter 2010 Lecture 14 Lecture 1 22 Lecture 1 Chapter 8 of text Available on CTools Quiz this week in discussion Reading Problem Set 8 Lecture 1 33 Lecture 1 Application of the Market Model: Supply and Demand model yielded a very strong result: n Freely operating markets tend to allocate resources efficiently Creates tension between competing goals of policy makers Highlight the tradeoffs inherent in these policy choices by examining trade policy Lecture 1 44 Lecture 1 Application of the Market Model: Adopt the Supply/Demand model to discuss trade issues n Why trade with other countries? n How do we measure the benefits of trade? n Are there motivations to protect local industries from low-cost producers overseas? Lecture 1 55 Lecture 1 Decrease in Producer Surplus Gains: from reduced prodn The Gains from Trade Quantity Price/unit Domestic Demand Domestic Supply PAutarky QAutarky PWorld QS QD Gains: from increased consn Imports Gains from trade Increase in consumer surplus Social Surplus Lecture 1 66 Lecture 1 A comment on the equilibrium price: Domestic consumers will not buy domestically at a price above Pworld n They could import the equivalent product for a lower price As domestic producers are competing with the other producers in the world market, domestic producers cannot charge a higher price than Pworld Therefore Pworld is the price at which trade occurs in the domestic market Lecture 1 77 Lecture 1 The Gains from Trade Quantity Price/unit Domestic Demand Domestic Supply PAutarky QAutarky PWorld QS QD Social Surplus Exports Gains: from increased production Gains: from decreased consn Gains from Trade Increase in Producer Surplus Decrease in Consumer Surplus Lecture 1 88 Lecture 1 A comment on the equilibrium price: Domestic producers will not sell domestically at a price below Pworld...
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Econ 101 Winter 2010 Lecture 14 - Click to edit Master...

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