21 Instruments of Trade Policy, Part 1

21 Instruments of Trade Policy, Part 1 - Instruments of...

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1 1 Instruments of Trade Policy, Part 1 • The Theory of Trade Policy – Consumer and Producer Surplus – Supply, Demand, and Trade in a Single Industry – Costs and Benefits of Free Trade • Basic Tariff Analysis –In troduc t ion – Effects of a Tariff – Measuring the Amount of Protection – Costs and Benefits of a Tariff 2 Consumer and Producer Surplus Q P D S Q 0 P 0 3 Consumer and Producer Surplus • 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. 4 Consumer and Producer Surplus Q P D S Q 0 P 0
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2 5 Consumer and Producer Surplus • Producer Surplus: Producer surplus is the difference between the amount that producers actually receive for a given level of output and the minimum amount that they would have been willing to receive for that level of output. 6 Consumer and Producer Surplus Q P D S Q 0 P 0 7 Supply, Demand & Trade Assumptions: 1. Two countries: Home and Foreign. 2. Both produce and consume wheat. Home’s autarky prices is above Foreign’s autarky price. 3. There are no transportation costs. 8 Supply, Demand, & Trade Q Q Q P P P Home Foreign World D S D S
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3 9 Supply, Demand & Trade • Pre-Trade Consumer Surplus: –Home : – Foreign: • Pre-Trade Producer Surplus: : – Foreign: 10 Supply, Demand & Trade • To determine the world price and the quantity traded, two new curves need to be defined. –The Home import demand curve , and – The Foreign export supply curve . 11 Home’s Import Demand Curve QQ PP Home’s Domestic Market Home’s Import Demand D S 12 Foreign’s Export Supply Curve Foreign’s Domestic Market Foreign’s Export Supply D S
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4 13 Supply, Demand, & Trade • World equilibrium occurs when Home’s import demand equals Foreign’s export supply.
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This note was uploaded on 02/25/2012 for the course ECON 181 taught by Professor Kasa during the Spring '07 term at University of California, Berkeley.

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21 Instruments of Trade Policy, Part 1 - Instruments of...

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