Chapter 7 - Chapter 7: Global Markets in Action I. How...

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Chapter 7: Global Markets in Action I. How Global Markets Work a. Imports-goods and services that we buy from other countries b. Exports-goods and services that we well to people in other countries c. International Trade Today c.i. Global trade is enormous c.ii. d. What Drives International Trade? d.i. Comparative Advantage is the fundamental force behind trade d.i.1. Situation in which a person can perform an activity or produce a good or service at a lower opportunity cost than anyone else d.ii. Reaps gains from trade by specializing in the production of the good at which they have a comparative advantage and trading II. Winners, Losers, and the Net Gain from Trade a. Gains and Losses from Imports a.i. a.ii. Winners = surplus increases and the losers = surplus decreases a.iii. If US market opens to imports, CS expands, PS shrinks a.iv. b. Gains and Losses from Exports b.i. Measure by effect on PS, CS, and TS b.ii. US opens to exports, CS shrinks and PS surplus expands b.iii. Part of increase in PS is a redistribution of TS, other increase comes from net gain b.iv. Results from higher P and increased production = gain from exports III. International Trade Restrictions a. Tariffs-tax on good that is imposed by importing country when an imported good crosses its international boundary a.i. Provide revenue to the government a.ii. Enable government to satisfy self interest of the people who earn incomes in the import-competing industries a.iii. Decreases the gains from trade and are not in social interest a.iv. Effects of a Tariff a.iv.1. Rise in Price of a Good: to buy a good, Americans must pay world price plus the tariff a.iv.2. Decrease in Purchases: the higher price of a good brings decrease in the quantity demanded along the demand curve a.iv.3. Increase in Domestic Production: higher price of good stimulates domestic production and US firms increase quantity supplied a.iv.4. Decrease in Imports: both decrease in purchases and increase in domestic production contribute to this decrease in imports a.iv.5. Tariff Revenue: government’s collect revenue a.v. Winners, Losers, and Social Loss from a Tariff
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a.v.1. US Consumers of the Good Lose: b/c price of good in US
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This note was uploaded on 11/14/2011 for the course ECO 201 taught by Professor Dunlevy during the Fall '08 term at Miami University.

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Chapter 7 - Chapter 7: Global Markets in Action I. How...

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