Topic International Trade and Trade Restrictions Administrative things Course syllabus group presentation info future materials will be posted on httpdavemcevoyweeblycom imsangershtml ID: 613503
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Slide1
International Monetary Systems
Topic: International Trade and Trade RestrictionsSlide2
Administrative thingsCourse syllabus, group presentation info, future materials will be posted on:
http://davemcevoy.weebly.com/imsangers.htmlYou will indicate which financial crisis your group will present on by editing a Google Doc. The link to the document is:
goo.gl
/Xjl09gSlide3
If these countries were to trade, which would export Radios?Slide4
Today’s Agenda
Gains from trade from a market perspectiveArguments for and against free tradeTariffs (a type of trade restriction)Balance of Payments Accounts (measuring trade balances)Slide5
United States Trade BalanceSlide6
France Trade BalanceSlide7
Consider a country Isoland and the domestic market for textilesSlide8
Domestic Market Equilibrium (no trade)
Quantity of textiles
Price of textilesSlide9
Introducing tradeIsoland
is just one small country in the big bad worldThe same textiles are also produced in other countriesThe textile markets prevailing in other countries we will call the “world market”
The world supply and demand determine the “world price” – the price is in
Isoland
dollars
A comparison of the domestic price with the world price will indicate whether
Isoland
will import or export textiles. Slide10
Isoland and World Textile Markets
P
Q
Isoland’s
Textile Market
P
Q
World Textile MarketSlide11
Welfare measures after trade
Which actors in the Isoland market are better off? Which are worse off? What about total welfare (surplus)?Slide12
Isoland and World Textile Markets (low world price)
P
Q
Isoland’s
Textile Market
P
Q
World Textile MarketSlide13
Welfare measures after trade (low world price)
Which actors in the Isoland market are better off? Which are worse off? What about total welfare (surplus)?Slide14
Trade Restrictions - TariffsWhen countries become importers of goods we know that consumers are better off but producers are worse off.
Sometimes governments are willing (or are lobbied) to protect domestic producers by imposing tariffs – a tax on imported goodsThe tariff raises the price of the good relative to world price (which is also the domestic price without trade restrictions)Slide15
Welfare measures with tariffs (tax on imports)Slide16
Group Work: Trade and trade restrictions
Ecoland is a small country that produces and consumes jelly beans. The world price of jelly beans (outside of
Ecoland
) is €1 per bag.
Ecoland’s
domestic demand and supply functions for jelly beans are:
Q
D
= 8 – P
Q
S
= P
where P and Q are prices in euros and quantity in bags. Slide17
Q
D = 8 – P QS
= P
P
W
= €1
per bag
Answer the following (drawing graphs will help!!):
No trade
: Calculate the equilibrium price (the domestic price), quantity, consumer surplus, producer surplus and total surplus.
Free Trade
: Calculate the equilibrium price (the domestic price) quantity produced domestically, quantity consumed domestically, imports, consumer surplus, producer surplus and total surplus
Trade with Tariff:
Suppose a
€1
tariff is imposed for all inputs. Calculate equilibrium price (domestic price), quantity produced domestically, quantity consumed domestically, imports, consumer surplus, producer surplus, government revenue and total surplus.
What are the gains from free trade in Euros? What is the deadweight loss from the trade restriction?