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notes mar 25 - Hard to take back a subsidy Domestic market...

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Notes March 25th Final is on chapters 8, 9, 10, and 11 Note: there is a political side. When price increases, supply increases and demand decreases. As far as quantity goes, marginal social benefit. It’s a partial equilibrium analysis. If it is a price of a medicine? Marijuana? #2 PS 4 MSB (Qs) = 150-2Q Marginal Social Benefit to production. Change in NW = -1.25 < 0 Not correct, because doesn’t include MSB to production. Area under the curve is total social benefit Change in social benefit is 225. Change in NW (MSB) = NW change of -1.25 + 225 = 223.75 which is positive. Preferential trade agreements You can pick countries and engage in free trade with them. Terms of trade gain hurt the small country, could result in retaliation/ trade wars
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Unformatted text preview: Hard to take back a subsidy Domestic market failure-cant be assuming all markets are optimal and functional. It takes some time to end up at perfect equil. Place Response: If problem is domestic, use domestic remedies. For example, production subsidies vs. export subsidies. Exporting environmental problems to developing countries. This is where marginal social cost comes in. Models of median voter theorem and collective action address this problem. Free trade areas: External trade policies are the problem of the ones like NAFTA. Must have common external policy. Labor mobility- try to allow labor to move freely within these countries....
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