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Chapter 9 Powerpoint - Slides
Principles Of Economics I: Microeconomics (ECO 110)
University at Albany
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Seventh Edition Macroeconomics N. Gregory Mankiw CHAPTER 9 Application: International Trade 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. Wojciech Gerson Principles of In this chapter, look for the answers to these questions What determines how much of a good a country will import or export? Who benefits from trade? Who does trade harm? Do the gains outweigh the losses? If policymakers restrict imports, who benefits? Who is harmed? Do the gains from restricting imports outweigh the losses? What are some common arguments for restricting trade? Do they have merit? 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. The World Price and Comparative Advantage PW the world price of a good, the price that prevails in world markets PD domestic price without trade If PD PW, country has comparative advantage in the good under free trade, country exports the good If PD PW, country does not have comparative advantage under free trade, country imports the good 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 3 The Small Economy Assumption A small economy is a price taker in world markets: Its actions have no effect on PW. Not always for the simplifies the analysis without changing its lessons. When a small economy engages in free trade, PW is the only relevant price: No seller would accept less than PW, since she could sell the good for PW in world markets. No buyer would pay more than PW, since he could buy the good for PW in world markets. 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 4 A Country That Exports Soybeans Without trade, CS A B PS C Total surplus With trade, CS A PS B C D Total surplus Soybeans P S exports A B C 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. D gains from trade D Q 6 ACTIVE LEARNING 1 Analysis of trade Without trade, PD Q 400 P Plasma TVs S In world markets, PW Under free trade, how many TVs will the country import or export? Identify CS, PS, and total surplus without trade, and with trade. D 200 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 400 600 Q ACTIVE LEARNING Answers Without trade, CS A PS B C Total surplus 1 P Plasma TVs S gains from trade A With trade, B CS A B D C PS C Total surplus 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. D imports D Q Summary: The Welfare Effects of Trade PD PW PD PW direction of trade exports imports consumer surplus falls rises producer surplus rises falls total surplus rises rises Whether a good is imported or exported, trade creates winners and losers. But the gains exceed the losses. 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 10 Then Why All the Opposition to Trade? Recall one of the Ten Principles from Chapter 1: Trade can make everyone better off. The winners from trade could compensate the losers and still be better off. Yet, such compensation rarely occurs. The losses are often highly concentrated among a small group of people, who feel them acutely. The gains are often spread thinly over many people, who may not see how trade benefits them. Hence, the losers have more incentive to organize and lob for restrictions on trade. 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 12 Tariff: An Example of a Trade Restriction Tariff: a tax on imports Example: Cotton shirts PW Tariff: T Consumers must pay for an imported shirt. So, domestic producers can charge per shirt. In general, the price facing domestic buyers sellers equals (PW T ). 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 13 Analysis of a Tariff on Cotton Shirts P Free trade CS A B C PS G Total surplus A B Tariff CS A B PS C G Revenue E Total surplus A B Cotton shirts deadweight loss D F S A B C D E F G 25 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 40 70 80 D Q 15 Analysis of a Tariff on Cotton Shirts P D deadweight loss from the overproduction of shirts F deadweight loss from the underconsumption of shirts Cotton shirts deadweight loss D F S A B C D E F G 25 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 40 70 80 D Q 16 Arguments for Restricting Trade 1. The jobs argument Trade destroys jobs in industries that compete with imports. response: Total unemployment does not rise as imports rise, because job losses from imports are offset job gains in export 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 18 U. Imports Unemployment, Decade averages, Imports of GDP) Unemployment of labor force) 20012010 19811990 19711980 19611970
Chapter 9 Powerpoint - Slides
Course: Principles Of Economics I: Microeconomics (ECO 110)
University: University at Albany
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