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Unformatted text preview: 1 A Note on the Effect of British Restrictions on Colonial Trade In a free market economy producers of tobacco for export, such as Thomas Jefferson, could simply sell their tobacco to the highest bidder. But under the British mercantile system, they were forced to sell their tobacco first to a British merchant. The requirement is similar to a tax except that the money is paid to the British middlemen, rather than the British government -- as illustrated in the following diagram. The amount of tobacco is measured on the horizontal axis and the price of tobacco on the vertical axis. The free market supply curve and the demand curve tell us what would happen in the absence of British trade restrictions. In other words, they tell us the way things would work after a revolution in which the Americans broke free of the British. OB would be the free market price and OE would be the free market amount sold. Now consider the effects of the mer4cantilist requirement that Virginia tobacco producers amount sold....
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- Spring '11