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Chapter 9 Notes

by: Chloe

Chapter 9 Notes ECON 101

GPA 3.6
Principles of Microeconomics
David W. Johnson

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About this Document

Notes on Ch.9: International Trade Imports, Exports, and Tariffs. Arguments to debunk myths against international trade. The equation for Dead Weight Loss
Principles of Microeconomics
David W. Johnson
Class Notes
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This 2 page Class Notes was uploaded by Chloe on Saturday October 3, 2015. The Class Notes belongs to ECON 101 at University of Wisconsin - Madison taught by David W. Johnson in Summer 2015. Since its upload, it has received 44 views. For similar materials see Principles of Microeconomics in Economcs at University of Wisconsin - Madison.


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Date Created: 10/03/15
International Trade 3 questions to think about a How does international trade affect price of products and quantity sold in the domestic market b Who gains from International Trade Who loses in international trade Do the gains exceed the losses c Should a tariff be imposed Tariff tax on imports World Price and Comparative Advantage Should we export or import World Price the main price of a good in the world market Easiest to export if export prices are lower than world price Easier to import if world price is cheaper than domestic prices Pretrade world and domestic prices demonstrate comparative advantage the domestic price is the opportunity cost for producing a good Gains Losses Change in consumer and producer surplus Conclusion a When a country becomes an exporter of a good in a world market domestic producers are better off and domestic consumers are worse off b Trade increases a nation39s wellbeing because the gains of producerswinners exceed the losses of consumerslosers Tarrifs and Quotas Tariff tax on imported goods Quota limiting the amount of goods imported into a country Help the domestic producer as they both increase the demand for domestic goods hurt the domestic consumer as both cases drive up prices Tarriff creates deadweight loss by slightly increasing the price of a good in the domestic market causing domestic suppliers to make more of the good and domestic consumers to buy less of it There is a slight deadweight loss DWL 12Qs after tariff Qs before teriffP with tariffP no Tarrif12Qd before tariffQd after tariffP with TariffP no tariff Trade has added benefits Increased flow of ideas Adds Competitions sLowers cost of economics of scalehuge amount of goods at a low cost Larger vareity of good available Arguements for Restricting Trade 1 The Jobs Arguement What People will lose jobs because of trade Lol There will be a lower quantity demanded of a good in a domestic market for a good that is imported from the worl market however this does not mean that there are NO MORE JOBS AVAILABLE in the country It is likely that the country exports certain goods as well meaning that some goodand industry is benefitting from trade As a result people should be trained for production in this other market and thus make a higher incomethus standard of living through reallocation of rescources ie people to another market 2 The National Security Arguement What Certain industries are vital to the production wartime goodsweapons If we were to to participate in free trade then we would be getting resources for the fabrication of weapons from other countries If war were to break out foreign supply would be interrupted Lol If we are importing the material to make weapons from the world market then it would be much cheaper to produce these weapons 3 The infantIndustry Arguement What lnfant lndustriesnew firms cannot grow up of there is intense competition from already mature foreign firms We need to impose tariffs and quotas and subsidize infant industires until they are mature enough to compete in the world market Lol lnfant Industries cannot mature if they do not face competition and are subsidized as they do not learn to be efficiant Instead they will be dependant on subsidies and demand more taking away from consumers lnstead an infant firm must be left to fend for itself It is normal to face losses before making profits If a firm is to succeed firm owners will be willing to take these losses 4 The unfaircompetition Arguement What A country could subsidize a product allowing it to be more competitive in the world market Lol although our producers take a hit we import the prodect thus beenfitting consumers cheaper prices It is that country39s consumers who take a hit and who have to pay taxes to support that subsidy 5 The Protection as a bargaining chip arguement What The threat of a trade restriction can remove a trade restriction already imposed by a foreign goverment Lol Threats might not work Either the country making the threat will have to implement the trade restriction thus reducing its own economic welfare or back out of the threat making it look bad in terms of international relationsimage


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