Econ Chapter 9
gains from trade
exceed the losses
Figure 9-6: The figure illustrates the market for roses in a country. When a tariff is imposed in the market, domestic producers
gain $150 of producer surplus.
when a country allows trade and becomes an exporter of a good
producers of the good are better off and consumers of the good are worse off
arguments for restricting trade
protecting jobs, defending national security, helping infant industries, preventing unfair competition, and responding to foreign trade restrictions
A tariff
raises the domestic price of the imported good above the world price.
A tariff is a
tax on an imported good.
most economists believe that trade is
the better policy
Figure 9-6: The figure illustrates the market for roses in a country. With trade and without a tariff,
the domestic price is equal to the world price.
world price
the price of a good that prevails in the world market for that good
Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve forcardboard is, Suppose the world price of cardboard is $45. Then, relative to the no-trade situation, international trade in cardboard produces which of the following results for Boxland?
It increases consumer surplus, decreases producer surplus, and increases total surplus.
Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve forcardboard is, Suppose the world price of cardboard is $60. Then, relative to the no-trade situation, international trade in cardboard
harms Boxlandian consumers by $704 and benefits Boxlandian producers by $864.
domestic producers are better off and the government raises revenue but
the losses to consumers exceed these gains
Domestic producers of a good become better off, and domestic consumers of a good become worse off, when a country begins allowing international trade in that good and
the world price exceeds the domestic price of the good that prevailed before international trade was allowed.
If the United States imports televisions and the U.S. government imposes a tariff on televisions, then
total surplus in the American television market decreases, producer surplus in the American television market increases, U.S. imports of foreign televisions decrease
Which of the following tools and concepts is useful in the analysis of international trade?
total surplus, domestic supply, equilibrium price
Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve forcardboard is, Suppose the world price of cardboard is $60 and international trade is allowed. Then Boxland's consumers demand
80 tons of cardboard and Boxland's producers supply 120 tons of cardboard.
Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve forcardboard is, Suppose the world price of cardboard is $60. Then, relative to the no-trade situation, international trade in cardboard produces which of the following results for Boxland?
It decreases consumer surplus, increases producer surplus, and increases total surplus.
Figure 9-6: The figure illustrates the market for roses in a country. The size of the tariff on roses is
$1.
Figure 9-6: The figure illustrates the market for roses in a country. The amount of deadweight loss caused by the tariff equals
$100.
Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve forcardboard is, Suppose the world price of cardboard is $45. Then Boxland's gains from international trade in cardboard amount to
$122.50.
Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve forcardboard is, Suppose the world price of cardboard is $60. Then Boxland's gains from international trade in cardboard amount to
$160.
Figure 9-6: The figure illustrates the market for roses in a country. The amount of revenue collected by the government from the tariff is
$200.
Figure 9-6: The figure illustrates the market for roses in a country. Without trade, the equilibrium price of roses is
$4 and the equilibrium quantity is 300.
Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve forcardboard is, If Boxland prohibits international trade in cardboard, then the equilibrium price of a ton of cardboard is
$52 and the equilibrium quantity of cardboard is 96 tons.
Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve forcardboard is, Suppose the world price of cardboard is $45 and international trade is allowed. Then Boxland's consumers demand
110 tons of cardboard and Boxland's producers supply 75 tons of cardboard.
tariff
a tax on goods produced abroad and sold domestically
Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve forcardboard is, Suppose the world price of cardboard is $45. Then, relative to the no-trade situation, international trade in cardboard
benefits Boxlandian consumers by $721 and harms Boxlandian producers by $598.50.
a tariff moves a market
closer to the equilibrium that would exist without trade and reduces the gains from trade
the effects of free trade of free trade cabe be determined by
comparing the domestic price before trade with the world price
When a country allows trade and becomes an importer of a good
consumers are better off ad producers are worse off
Figure 9-6: The figure illustrates the market for roses in a country. The imposition of a tariff on roses
decreases the number of roses imported by 200.
Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve forcardboard is, Suppose the world price of cardboard is $60. Then, if Boxland goes from prohibiting international trade in cardboard to allowing international trade in cardboard,
domestic producers of cardboard become better off and domestic consumers of cardboard become worse off.
Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve forcardboard is, Suppose the world price of cardboard is $45. Then, if Boxland goes from prohibiting international trade in cardboard to allowing international trade in cardboard,
domestic producers of cardboard become worse off and domestic consumers of cardboard become better off.
A country has a comparative advantage in a product if the world price is
higher than that country's domestic price without trade.
For any country, if the world price of copper is lower than the domestic price of copper without trade, that country should
import copper.
Figure 9-6: The figure illustrates the market for roses in a country. Before the tariff is imposed, this country
imports 400 roses.
Figure 9-6: The figure illustrates the market for roses in a country. When the tariff is imposed, domestic consumers
lose by $450.
Assume, for Mexico, that the domestic price of beets without international trade is higher than the world price of beets. This suggests that, in the production of beets,
other countries have a comparative advantage over Mexico and Mexico will import beets.
A major difference between tariffs and import quotas is that
tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import.
a low domestic price indicates that
the country has a comparative advantage in producing the good and the country will become an exporter
a high domestic price indicates that
the rest of the world has a comparative advantage in producing the good and the country will become an importer
Suppose Brazil has a comparative advantage over other countries in producing almonds, but other countries have an absolute advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil
will export almonds.