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Chapter 9: International Trade (The effects of a tariff (Tariff is a tax…
Chapter 9: International Trade
The gains and losses of an importing country (under free trade)
Domestic consumers of the good are better off
Domestic producers of the good are worse off
The gains of buyers exceed the losses of sellers => raises the economic well- being of a nation
The buyers are the winners and the sellers are the losers
When the domestic price is higher than the world price
The extra area in the graph will be the imports part
The gains and losses of an exporting country (under free trade)
Domestic producers of the good are better off
Domestic consumers of a good are worse off
The gains of sellers exceed the losses of buyers => raises the economic well- being of a nation
When the domestic price is lower than the world price
The extra area in the graph will be the exports part
The effects of a tariff
Tariff is a tax imposed on imported goods
Consumer surplus will decrease
Producer surplus will increase
Government collects tariff revenue => overall the total surplus will decrease
Quota: a limit on the amount of import
For Quota: only domestic importers that have quota license can export goods
For Quota: the importers gain the difference between domestic price and the world price
Tariff = amount of tax/ unit imported x number of units imported
Benefits of international trade
Increased variety of goods
Lower costs through economies of scale: some goods can be produced at low cost only if they are produced in large quantities
Increased competition (not to raise price over the competitive level)
Enhanced flow of ideas (i.e. the transfer of technological advances)
The arguments for restricting trade
The jobs argument (due to the decrease in supply => citizens might lost their jobs). However, it also helps to create jobs if employees move to other industries
The national security argument
The infant industry argument
The unfair competition argument
The protection as a bargaining- chip argument
Comparative advantage from trade
Climate and natural resources
Relative abundance of labor and capital
Technology
External Economies