16%20Barriers%20to%20Imports--Tariffs

16%20Barriers%20to%20Imports--Tariffs - Barriers to...

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1 1 Barriers to Imports: Tariffs •In t rodu c t ion • Analyzing Welfare Effects • Free Trade Equilibrium Welfare Effects • Basic Tariff Analysis 2 Introduction The effect of any trade policy differs significantly depending on the size of a country in world trade terms. 1. “Small” countries 2. “Large” countries 3 Introduction • If a country is "small" in world trade terms then that country’s imports and exports are a very small share of the world market for that good. – Whenever a country is small in an international market, domestic trade policies DO NOT affect the world price of the good . 4 Introduction • If the country is "large" in world trade terms then that country’s imports and exports are a significant share of the world market for that good. – Whenever a country is large in an international market, domestic trade policies DO affect the world price of the good .
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2 5 Analyzing Welfare Effects To determine the welfare effect of trade policies, a partial equilibrium analysis must distinguish between the welfare of: 1. Consumers, measured by consumer surplus, and 2. Producers, measured by producer surplus. Any revenue collected by the government is assumed to be spent or redistributed to others, thus raising the welfare of somebody. 6 Analyzing Welfare Effects Q P D S Q 0 P 0 7 Analyzing Welfare Effects • Consumer Surplus: Consumer surplus is the differences between the amount that consumers actually pay for a given level of output and the maximum amount that they would have been willing to pay for that output.
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This note was uploaded on 02/09/2011 for the course ECON 181 taught by Professor Kasa during the Fall '07 term at Berkeley.

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16%20Barriers%20to%20Imports--Tariffs - Barriers to...

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