Week 8 Notes ECON 142
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This 2 page Class Notes was uploaded by Noah Johnston on Friday October 14, 2016. The Class Notes belongs to Econ 142 at Kansas taught by Dr. Brian Staihr in Fall 2016. Since its upload, it has received 17 views. For similar materials see Microeconomics in Economics at Kansas.
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Date Created: 10/14/16
ECON 142 Week 8 Notes Absolute Advantage - I need to know it! Autarky - country doesn’t trade, it just works on its own To determine terms of trade: Find a common denominator, and then find something that falls between the two opportunity costs. the answer is either that fraction or the reciprocal of the fraction. calculate the opportunity cost of making 1 of each good in each country. Take some ratio in between. The “Losers” from Free Trade Tariff: tax on an import two kinds: 1. Specific tariff: dollar amount, a specific number identified 2. Ad valorem tariff: a percentage of the value, like a 20% tax A tax on imports will not only raise the price of imports, it will raise the price of the domestic thing that is being produced. Smoot-Hawley – In the 1930s, Smoot-Hawley Act imposed tariffs on older, labor- intensive industries. (Clothing, textiles, shoes). Industry lobbying campaigns have kept many of these in place for decades Modeling a Tariff: However much the international price is, shift the tariff up that same amount. This means the amount being imported goes down. Under the tariff: 1. Quantity of imports is reduced 2. Price the customer is paying is higher than it was under free trade 3. price the domestic guys are receiving is higher because their prices can go up too 4. The quantity supplied domestically increases Absolute Advantage: Trees Tables Madagascar 800 100 U.S. 400 500 Whoever can produce more of something is absolute advantage! For example, U.S. has absolute advantage when making tables while Madagascar has absolute advantage when growing trees. Inherent Comparative Advantage: Comparative advantage based on factors that are relatively unchanging. Transferrable C.A.: Based on factors that can be changed relatively easily. (Workers’ skills, technology).