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UM / Business / BUS 211 / When do trade deficits happen?

When do trade deficits happen?

When do trade deficits happen?

Description

School: University of Miami
Department: Business
Course: Professional Development for Finance and Accounting
Professor: David spigelman
Term: Fall 2014
Tags: Economics
Cost: 25
Name: Econ 211 Week 4 Notes
Description: These notes cover details from class lectures and practice test problems reviewed in class.
Uploaded: 02/07/2016
6 Pages 135 Views 1 Unlocks
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MicroeconomicsDon't forget about the age old question of How would you define a conditional probability?
If you want to learn more check out What do you mean by petroleum?

Chapter 7

Equity: who gets what?

Efficiency: how big is the size, when the size is maximized?

What can you say about the price ratio with trade?

Price ratio with trade is going to be in between the price ratio in autarchy (when the firm functions independently)We also discuss several other topics like Discuss the importance of neutral conductors.

Trade deficit: when imports are greater than exports. Could be good if you are investingDon't forget about the age old question of What is the concept of algorithm?

Trade surplus: when exports are greater than imports

Welfare analysis

(1) Autarky

(2) Free Trade

(2-1) A (change)

CS Consumer Surplus

A + B + C

A

-B -C

PS Producer Surplus

D + E

B + C + F + D + E

B + C + F

GR Government Revenue

W Welface

A + B + C + D + E

A + B + C + D + E + F

F

Welfare: total surplus, so you add up the rows to calculate welfare

  • Of welfare increase deadweight gain, welfare decrease deadweight loss

MicroeconomicsDon't forget about the age old question of What is meant by equipotential surface?

Chapter 7

If you want to learn more check out How is the cell size limitation determined?

  1. Autarky
  1. Free Trade

(2-1)

CS

A + B

A + B + C + D + E + F

C + D + E + F

PS

C + D + G

G

- C  - D

GR

O

O

O

W

A + B + C + D + G

A+ ….G

E + F

  • It doesn’t matter if the free trade price is above or below the autarky price, there are still gains from trade!

Tariff Substitution / Instant Industry: when tariffs are put on imports to encourage industry growth and to industrialize local goods

Is this effective? NO!

When the industry doesn't have to compete with outside companies they don’t have to produce at the highest quality

*For all trade consumers + producer see the same price, tariffs raise price for consumers + producers by the same amount

Microeconomics

Chapter 7

  1. Free Trade
  1. With Tariff

(2 - 1)

CS Consumer Surplus

A + B + C + D + E + F

A + B

-C -D -E -F

PS Production Surplus

G

C + G

C

GR Government Revenue

O

E

E

W Welfare

A + B + C + D + E + F + G

A + B + C + G + E

-D - F

GR = Quantity of imports *tariff per unit cost

Imports - difference between QD + QS

Tariffs:

  • Inefficient
  • Create a DWL
  • Create a loss in welfare / total surplus

Main Signs of Comparative Advantage: countries should tend to specialize in industries and or economic activities that take advantage of their relative factor endowments (abundant inputs to production) through specialization and trade they are able to achieve gains

Microeconomics Exam 1 Review

Main Topics on Exam

  • Comparative advantage
  • Trade
  • Supply and demand
  • Elasticity
  • Competitive equilibrium

Example: comparative advantage

Absolute advantage: who can produce the most in Autarky

  • Madagascar has the absolute advantage in producing butter
  • Neither has the absolute advantage in guns

*Example will only have one absolute advantage on the test*

comparative advantage: if the slope is steeper it has comparative advantage in the y - axis good, if the slope is flatter than it has the comparative advantage in the X - axis good

  • Swaziland has comparative advantage in guns
  • Madagascar has comparative advantage in butter

Microeconomics: In Class Review

Terms: Chapter 1

Ceteris Paribus: all else is equal, used when you have one variable to see its effect

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