Principles of Economics- Mankiw (5th) 180

Principles of Economics- Mankiw (5th) 180 - 186 PA R T T H...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
186 PART THREE SUPPLY AND DEMAND II: MARKETS AND WELFARE winners and losers, regardless of whether Isoland ends up exporting or importing steel. In either case, however, the gains of the winners exceed the losses of the losers, so the winners could compensate the losers and still be better off. In this sense, trade can make everyone better off. But will trade make everyone better off? Probably not. In practice, compensation for the losers from international trade is rare. Without such compensation, opening up to international trade is a policy that expands the size of the economic pie, while perhaps leaving some participants in the economy with a smaller slice. THE EFFECTS OF A TARIFF The Isolandian economists next consider the effects of a tariff —a tax on imported goods. The economists quickly realize that a tariff on steel will have no effect if Isoland becomes a steel exporter. If no one in Isoland is interested in importing C B D A Price of Steel Price before trade 0 Quantity of Steel Domestic supply Domestic demand Price after trade
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

Ask a homework question - tutors are online