ch8_9notes - Trade Barriers in Action 1 The effects of(free...

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Trade Barriers in Action 1
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The effects of (free) trade on production, consumption and prices For the importing country Imports are cheaper than the domestic pre-trade prices Trade increases domestic consumption But decreases domestic production For the exporting country Exports are more expensive than the domestic pre-trade price Trade increases domestic production 2
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The Effects of Trade on Well-Being of Producers, Consumers, and the Nation as a Whole 3
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Why do countries trade? Importing country Consumer surplus increases by areas a+b+d Producer surplus decreases by area a Net gain – areas b+d Exporting country Producer surplus increases by areas j+k+n Consumer surplus decreases by areas j+k Net gain – area n Both countries gain from free trade Do all individuals in these in these 4
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Who wins and who loses from international trade? Winners Consumers in the importing country Producers in the exporting country Losers Producers in the importing country Consumers in the exporting country 5
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Tariffs – a classic trade barrier A tariff is a tax on imported products Tariffs are among the world’s oldest taxes and an important source of (government) revenue in the past Over the past 60 years governments of industrialized countries have reached a series of global agreements that have reduced tariffs GATT – the General Agreement on Tariffs and Trade (1947 – 1994) WTO – the World Trade Organization (since 6
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Tariffs How low (or high?) are tariffs today?
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