GLOBAL MARKETS IN ACTION Flashcards
When Do Countries Import Goods
If their own production price is MORE than the world price
When do countries Export
If their own production price is LESS than the world price
How do Imports change the Consumer Surplus, Producer Surplus and Total Surplus
Consumer Surplus: Larger
Producer Surplus: Smaller
Total Surplus: Larger
How do Exports change the Consumer Surplus, Producer Surplus, Total Surplus
Consumer Surplus: Smaller
Producer Surplus: Larger
Total Surplus: Larger
What do Restrictions do to Trade
-Raise price of imported goods
-Lower quantity imported
-Decrease Consumer Surplus
-Increase Producer Surplus
-Deadweight Loss
What is a Tariff
Tax on good imposed by importing country on imported good
How does a Tariff change the price and quantity of imported good
Price raises
quantity bought decreases
quantity produced in country increases
quantity imported decreases
Gvt collects tariff revenue
What happens to Consumer and Producer Surplus with a Tariff
Consumer Surplus Decrease
Producer Surplus Increase
Consumer Surplus Decrease > Producer Surplus Increase
-Higher Price
-Producers have higher costs
-imports decrease
-tariff revenue and deadweight loss
What are Import Quotas
Limits quantity of good imported in given period
What are the effects of an import Quota on price and quantity
Price rises
quantity bought decreases
quantity produced increases
What happens to Consumer Surplus, Producer Surplus and Total Surplus with a Quota
Consumer Surplus Decreases
Producer Surplus Increases
Total Surplus Decreases
Deadweight Loss
How to figure out a quota in graph
If Original supply is 2 and Quota is 5
Original supply line + 5 : new supply line starts at 7
Other Import Barriers
Health/Safety Regulations
Voluntary Export restraints: country limits exports
Export Subsidies: payment by gvt to producer of exported good
—-Illegal: Increases production = Over production–> makes it hard for other countries to compete
What are 7 Arguments for Trade Restrictions & Counterarguments
1) Helps Infant industries grow
–>firms still grow on the job
2) Counteracts Dumping: when foreign firms sell exports at lower price than cost of production (firms export price is below domestic price)
–>world demand is very sensitive to price
3) Saves Domestic Jobs
–>international trade creates jobs
4) Allows country to compete with cheap foreign labour
–>high work productivity = higher wage rate
5) Penalizes lax environmental standards
–>better enviro standards come from income growth
6) Prevents rich countries from exploiting developing countries
–>increase demand=increase labour=increase wages
7) Reduces off shore outsourcing
–>jobs are insourced
2 Reasons why International Trade is Restricted
1) Tariff Revenue
2) Rent Seeking
