09 Flashcards
(16 cards)
Small Open Economy
A country whose imports don’t affect the world price (pw)
A situation in which goods can be traded without restrictions is referred to
as..
free trade.
What does it mean that “for prices below pw, the domestic supply curve remains unchanged”?
It means domestic producers weren’t producing at those low prices anyway, so opening to trade at those prices doesn’t change their behavior.
Eğer iç piyasadaki fiyat, dünya fiyatı
pw ’dan düşükse, yerli üreticilerin davranışı değişmez, yani arz eğrisi aynı kalır.
Domestic Producer vs. Normal Producer?
Domestic producer: Ürünü kendi ülkesinde üreten üretici
Normal producer (genel terim) Üretici kelimesinin genel hali – ister yerli olsun ister yabancı
Domestic Supply vs. Normal Supply
Domestic supply Yalnızca yerli üreticilerin arz ettiği miktar
Supply (genel hali): Piyasada bulunan toplam arz — hem yerli hem de ithal olabilir
Free trade ile autarky arasındaki en kritik fark nedir?
Free trade’de fiyat dünya piyasasına (pw) bağlıdır; autarky’de sadece yerel arz/talep belirler.
What happens when a small open economy allows free trade and the world price is lower than the domestic price?
The domestic price drops to the world price, consumption increases, and domestic production decreases.
Under autarky (no trade), equilibrium price is where..
domestic demand = domestic supply.
With free trade, if the world price (pW) is lower than the domestic price, the country will..
import.
What happens to consumer surplus and producer surplus under free trade?
CS = increases because the price is lower.
PS = decreases because producers sell less at a lower price.
Since producers are worse off under trade, it is not surprising that they
often advocate for restricting trade in order to protect the domestic
economy. This is referred to as..
protectionism.
In contrast, a situation where trade is
unrestricted is called free trade.
What is a Tariff?
A tariff is a tax on imports.
When imposed, it raises the import price from pw to pw + t = ptw
Tariffs..
Reduce imports
Raise domestic production
Lower consumption
What were Bismarck’s tariffs intended to protect?
Both industry and agriculture (especially grain producers).
Quota
Quota = Quantity limit on imports (Q units)
An alternative policy instrument to protect domestic producers is the
introduction of an import quota.
The idea of a quota Q is that at most Q units of a good may be imported.
