ECO 2023 Week 6 - Day 1 Lecture Notes
ECO 2023 Week 6 - Day 1 Lecture Notes Eco 2023
Popular in Principles of Economics: Microeconomics
Popular in Economics
This 7 page Class Notes was uploaded by Erika Huber on Thursday September 29, 2016. The Class Notes belongs to Eco 2023 at University of Florida taught by Mark Rush in Fall 2016. Since its upload, it has received 33 views. For similar materials see Principles of Economics: Microeconomics in Economics at University of Florida.
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Date Created: 09/29/16
9/26/16 ECO 2023 Week 6 – Day 1 Lecture Notes Chapter 7: International Trade US Exports World Imports USA Rest of the World US Imports World Exports We look more specifically at international trade in Macroeconomics. For now, we look at why we export and import. Basis for International Trade: Comparative Advantage: A nation has a comparative advantage when it can produce a good at a lower opportunity cost than other nations can. Exports Exports: How do exports affect the market? How do exports affect the economy? Price in US rises until it equals the World price. As price in the US rises: o We increase the quantity that we produce. o We decrease the amount that we consume. o Because these are exports, we produce more to export it so we aren’t consuming it. Exports Price Exports Supply US P US Demand US Quantity Quantity Quantity US Quantity Demanded Supplied US US The green triangle is the consumer surplus. o Exports have decreased the consumer surplus. The blue triangle is the producer surplus. o Exports have increased the producer surplus. Exporting from the US is worse off for consumer and better for producers. o Consumer surplus o Producer surplus However, the total surplus for the economy increases, so exports benefit the whole economy. Imports Imports: How do imports affect the market? How do exports affect the economy? We have a comparative disadvantage. Price in US decreases until it equals the world price. As price in the US decreases: o We decrease the amount that we produce. o We increase the amount that we consume. o We consume what we import and we aren’t producing. Imports Price Supply US P US Demand Imports US Quantity Quantity Quantity US Demanded Quantity Supplied US US The green triangle is the consumer surplus. o Imports have increased the consumer surplus. The blue triangle is the producer surplus. o Imports have decreased the producer surplus. Importing to the US is better for consumer and worse for producers. o Consumer surplus o Producer surplus However, the total surplus for the economy increases, so imports benefit the whole economy. Tools to limit competition from Imports Tariff Tariff: A tax on imports. Smoot/Hawley Tariff (1930) o Raised US tariff levels A tariff affects the market by: How does a tariff affect the market? Decreasing Imports Price Supply US PWorld + Increasing Price Tariff ($11) Imports with Tariff Tariff = $1 PWorld ($10) Demand US Imports without Tariff Quantity QS QST QDT QD How does a tariff affect the economy? Price No Tariff Supply US Consumer Surplus Producer Surplus Government Demand US Quantity Deadweight Loss Price With Tariff Supply US The tariff affects the economy by: Decreasing Consumer Surplus Increasing Producer Surplus TARIFF Increasing Government Gains IMPORTS Tariff Revenue = tariff * Quantity imported = area of rectangle Demand US Because of the Deadweight Loss, Quantity there is some surplus that is lost, so overall, a tariff negatively impacts the economy and society. As the elasticity of demand increases, the Deadweight Loss decreases. Quota: Quota: A quantitative limit on imports. Quota affects supply. The supply available with a quota is the supply made in the US + the amount of the quota. How does a quota affect the market? Quota = 200 Million Price Supply US Supply Available Quota = 200M Demand US Quantity 700 M 900M ( A quota affects the market by: Decreasing amount consumed Increasing amount supplied Increasing Price How does a quota affect the economy? Consumer Surplus Price No Quota Supply US Producer Surplus Quota Imports Deadweight Loss Demand US Quantity The tariff affects the economy by: Price With Quota Decreasing Consumer Surplus Supply US Increasing Producer Surplus Quota / Importers Gain P US (P US – P World) * imports OR (Sell – Buy) * imports = area of rectangle Imports P World Because of the Deadweight Loss, there is some surplus that is lost, Demand US Amount Imported so overall, a quota negatively impacts the economy and society. Quantity