Equilibrium wout trade has only domestic buyers sellers the equilibrium price

Equilibrium wout trade has only domestic buyers

This preview shows page 10 - 13 out of 27 pages.

Equilibrium w/out trade has only domestic buyers & sellers & the equilibrium price & quantity is determined on the domestic market b. Total benefits- consumer & producer surplus c. World price- price of a good that prevails in the world market for that good d. Domestic price- opportunity cost of the good on the domestic market e. Compare domestic price w/ world price i. If domestic price < world price 1. Export the good & the country has the comparative advantage ii. If domestic price > world price 1. Import the good & the world has comparative advantage II. Winners & losers from trade- trade can make everyone better off a. Exporting country i. Domestic equilibrium price before trade is below the world price ii. Once trade is allowed 1. Domestic price rises to equal the world price 2. Domestic quantity supplied is greater than domestic quantity demanded 3. The difference= exports iii. Before international trade- consumer & producer surplus iv. W/ international trade- 1. Smaller consumer surplus
Image of page 10

Subscribe to view the full document.

Microeconomics Final Exam Study Sheet 2. Higher producer surplus 3. Higher total surplus 4. Domestic producers of the good are better off while domestic consumers are worse off 5. Trade raises the economic well-being of a nation a. Gains of the winners exceed the losses of the losers b. Importing country i. Domestic equilibrium price before trade is above the world price ii. Once trade is allowed 1. Domestic price drops to equal world price 2. Domestic quantity supplied is less than domestic quantity demanded 3. The difference= imports iii. Before international trade- consumer & producer surplus iv. w/ international trade 1. Higher consumer surplus 2. Smaller producer surplus 3. Higher total surplus 4. Domestic producers of the good are worse off while the domestic consumers are better off 5. Trade raises the economic well-being of a nation a. Gains of the winners exceed the losses of the losers c. Tariff- tax in goods produced abroad & sold domestically d. Free trade- domestic price= world price e. Tariff on imports- raises domestic price above the world price by the amount of the tariff f. Before the tariff- consumer & producer surplus & govt tax revenue= 0 g. Effects of a tariff i. Prices rises by the amount of the tariff ii. Domestic quantity demanded decreases while the domestic quantity supplied increases iii. Reduces the quantity of imports iv. Moves the domestic market closer to its equilibrium w/out trade v. Domestic sellers are better off while domestic buyers are worse off vi. Consumer surplus is smaller & producer surplus is bigger vii. Govt tax revenue viii. Total surplus is smaller h. Other benefits of international trade i. Increased variety of goods & competition ii. Lower costs through economies of scale iii. Enhanced flow of ideas- transfer of technological advances around the world III. Arguments of restricting trade a. Domestic producers- oppose free trade
Image of page 11
Microeconomics Final Exam Study Sheet i. Believe that the govt should protect the domestic industry from foreign competition Chapter 10 Externalities (85% of exam) I.
Image of page 12

Subscribe to view the full document.

Image of page 13
  • Fall '08
  • BARCIA

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask bonus questions You can ask questions ( expire soon) You can ask questions (will expire )
Answers in as fast as 15 minutes