trade_policy - Trade Policy Protecting with Tariffs Quotas...

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Trade Policy Protecting with Tariffs, Quotas and Other Trade Barriers
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The Small, Open Economy World markets set prices The small economy is a price taker, for example, Canada, Italy, Chile, S. Korea Autarkic market clearing prices vs. the world price Export if domestic price is less Import if it is more
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Import Equilibrium
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Import Equilibrium Price falls to import price Domestic quantity supplied is less But import price is less than domestic cost Gain = cost savings Lost jobs and profits in the contracting sector Domestic quantity demanded is more But MB > import price Gain = consumer surplus No losers
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Export Equililbrium
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Export Equilibrium Price rises to export price Domestic quantity supplied is higher Profits on extra output MC < export price No losers Domestic quantity demanded is less But MB < export price More gain from selling than consuming Consumers lose
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Protectionism Protect the economy from losses
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