E201 CH 9 International Trade
Determining the welfare effects of the tariff
+Change in consumer surplus (which is negative) +change in producer surplus +change in government revenue
Increased competition
A company shielded from foreign competitors is more likely to have power which in turn give it the ability to raise prices above competitive level. (A type of market failure). Opening up trade fosters competition and gives the invisible hand a better chance to work its "magic".
importer
A country implements a tariff only when the country is an ________ of goods.
Equilibrium without trade
A tariff moves the domestic market closer to its ______________ ___________ __________.
Importer
A tariff only has impact when a country is an ________ of a good.
A+B
Area between the demand curve and before-trade price that represents consumer surplus BEFORE trade of an EXPORTING country.
A+B+C+D+E+F
Area between the demand curve and the world price that represents the consumer surplus BEFORE the tariff.
C
Area between the supply curve and the before-trade price that represents producer surplus BEFORE trade for an EXPORTING country.
A
Consumer surplus AFTER trade (the area between the demand curve and the world price) for an EXPORTING country
Unfair-Competition Argument
Free trade is desirable only if all countries play by the same rules. If firms in different countries are subject to different laws and regulations, then it is unfair to expect the firms to compete in the international marketplace.
increased variety of goods
Goods produced in different countries are not exactly the same. Free trade gives consumers in all countries greater variety from which to choose.
export
If a country's quantity demanded is smaller than quantity supplied, the country becomes an _______.
import
If the world price of a good is lower than the domestic price, the country will __________ the good if trade is permitted.
Export
If world price of a good is higher than the domestic price, the country will _______ the good if trade is permitted.
Protection-as-a-Bargaining-Chip Argument
Many policymakers claim to support free trade but, at the same time, argue that trade restriction can be useful when we bargain with our trading partners. They claim that the threat of a trade restriction can help remove a tariff already imposed by a foreign government.
Infant Industry Argument
New industries will argue for temporary trade restriction to help them get started. After a period of protection, the argument goes, these industries will mature and be able to compete with foreign firms.
amount of the tariff
Once the government imposes a tariff, the domestic price exceeds the world price by the ______________.
National-Security Argument
Opponents of free trade often argue that the industry is vital to national security.
Jobs Argument
Opponents of free trade often argue that trade with other countries destroys domestic jobs.
B+C+D
Producer surplus AFTER trade (the area between the supply curve and the world price) for an EXPORTING country
Net effect on welfare
Rise in producer surplus-fall in consumer surplus OR Rise in consumer surplus-fall in producer surplus
Lower costs through economies of scale
Some goods can be produced at low costs only if they are produced in large quantities-- a phenomenon called economies of scale. Free trade gives firms access to larger world markets and allows them to realize economies of scale more fully.
A+B+D
The area between the demand curve and the world price that represents consumer surplus AFTER trade for an IMPORTING country.
B+C
The area between the price before trade and the supply curve that represents producer surplus BEFORE trade for an IMPORTING country.
C
The area between the supply curve and the world price line that represents producer surplus AFTER trade for an IMPORTING country.
G
The area between the supply curve and the world price that represents the producer surplus BEFORE the tariff.
A
The area that is between the demand curve and the domestic price before trade that represents consumer surplus BEFORE trade for an IMPORTING country.
A+B
The area that represents consumer surplus AFTER the imposed tariff
E
The area that represents government revenue after the imposed tariff
C+G
The area that represents producer surplus AFTER the imposed tariff
D
The area that represents the deadweight loss from the overproduction of a good
F
The area that represents the deadweight loss from the underconsumption of a good
A+B+C+D+E+F+G
The area that represents the total surplus (the sum of consumer surplus, producer surplus, and government revenue), BEFORE tariff.
A+B+C+E+G
The area that represents the total surplus with the imposed tariff.
D+F
The area(s) that represents he deadweight loss of the tariff and shows the fall in total surplus.
Government revenue
The quantity of after-tariff imports x the size of the tariff.
A+B
The sum of consumer surplus and producer surplus BEFORE trade.
Enhanced flow of ideas
The transfer of technological advances around the world is often thought to be linked to the trading of the goods tat embody those advances.
A+B+C+D
Total surplus AFTER trade
Economic Wellbeing
Trade rates the ___________________ of a nation in the sense that the gains of the winners exceed the losses of the losers.
little/no impact
What kind of impact do small economies have on the world markets?
Producers, consumers
When a country allows trade and becomes an exporter of a good, domestic ____________'s of the good are better off, and domestic__________'s of the good are worse of.
Consumers, producers
When a country allows trade and becomes an importer of a good, domestic ______ of the good are better off, and domestic ___________ of the good are worse off.
Winners, losers
When a nation opens itself up to trade, there are ________ and _________.
increase production
When a tariff raises the domestic price of a good above the world price, it encourages domestic producers to ____________.
demanded, supplied
When a tariff raises the price of a good, it reduces the domestic quantity ____________ and raises domestic quantity ______________.
Equilibrium without Intl. Trade
When an economy cannot trade in world markets, the price adjusts to balance domestic supply and demand.
Reduce consumption
When the tariff raises the price that domestic consumers have to pay, it encourages them to ____________.
Consumers, producers
When trade forces the domestic price to fall, domestic ______ are better off and domestic ______ are worse off.
world price
after trade is allowed, domestic price rises to the ___________.
price taker
an individual or collective who takes the world price of a good as given
world price
before the tariff, the domestic price = ____________
look at gains and losses
how to measure gains and losses from an economy adjusting to world price?
Tariff
tax on goods produced abroad and sold domestically
World Price
the price of a good that prevails in the world market for that good
perfectly elastic
the world's demand is usually represented by a horizontal curve which indicates it is ___________.
