09%20The%20Standard%20Trade%20Model,%20Part%202

09%20The%20Standard%20Trade%20Model,%20Part%202 - Standard...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
1 1 Standard Trade Model, Part 2 Agenda –T a r i f f s Export Subsidies Terms of Trade, Economic Welfare, and the Distribution of Income 2 Introduction •A tariff is a tax on imports. •An export subsidy is a payment to a producer who exports. 3 Introduction • Tariffs and export subsidies drive a wedge between the prices at which goods are traded internationally (i.e., external prices ) and the prices at which they are traded within a country (i.e., internal prices
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 5 Effects of a Tariff • At any given world relative price of cloth , Portugal’s producers face a lower relative internal cloth price and will, therefore, produce less cloth and more wine. 6 Effects of a Tariff • At any given world relative price of cloth , Portugal’s consumers will face a lower relative internal cloth price and will, therefore, demand more cloth and less wine. 7 Effects of a Tariff P C / P W Q C + Q* C Q W + Q* W RS W RD W (P C /P W ) W 8 Effects of a Tariff • A tariff by Portugal will: Decrease the world relative supply of cloth, Increase the world relative demand for cloth, and Increase in the world equilibrium relative price of cloth.
Background image of page 2
3 9 Effects of a Tariff • A tariff by Portugal will: Improve Portugal’s terms of trade, and Worsen England’s terms of trade. 10
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/09/2011 for the course ECON 181 taught by Professor Kasa during the Fall '07 term at University of California, Berkeley.

Page1 / 7

09%20The%20Standard%20Trade%20Model,%20Part%202 - Standard...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online