We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you!
Presentation is loading. Please wait.
Published byDamion Delane
Modified over 2 years ago
© The McGraw-Hill Companies, 2012 Chapter 4: Essential Microeconomic Tools Everything should be made as simple as possible, but not simpler. Albert Einstein
© The McGraw-Hill Companies, 2012 Preliminaries I: supply and demand Demand curve shows how much consumers would buy of a particular good at any particular price. It is based on optimization exercise: would one more unit be worth (marginal utility) its price? Market demand is aggregated (horizontal sum) over all consumers’ demand curves.
© The McGraw-Hill Companies, 2012 Preliminaries I: supply and demand Supply curve shows how much firms would offer to the market at a given price. It is based on optimization exercise: would selling one more unit increase profit? Market supply is aggregated (horizontal sum) over all firms’ supply curves.
© The McGraw-Hill Companies, 2012 Welfare analysis: consumer and producer surplus Since demand curve is based on marginal utility and supply curve is based on marginal cost, they can be used to show how consumers and firms are affected by price changes. Difference between marginal utility of a unit and price paid shows the surplus consumers obtain from being able to buy c* units at p*. If units are finely defined, consumer surplus is the triangle between demand curve and price paid. Difference between marginal cost of a unit and price received shows the surplus producers obtains from being able to sell c* units at p*. If units are finely defined, producer surplus is the triangle between marginal cost curve and price received. Notice that a price rise increases producer surplus and decreases consumer surplus. A price drop does the opposite.
© The McGraw-Hill Companies, 2012 Welfare analysis: consumer and producer surplus
© The McGraw-Hill Companies, 2012 Preliminaries II: import demand curve Open-economy supply and demand diagram: essential for studying European economic integration. Import demand curve: -it represents how much a nation would import for any given domestic price; -it presumes imports and domestic production are perfect substitutes; -imports equal the gap between domestic consumption and domestic production.
© The McGraw-Hill Companies, 2012 Preliminaries II: import demand curve
© The McGraw-Hill Companies, 2012 Preliminaries II: import demand curve What happens if price increases from P′ to P′′? The previous graph shows that: -consumer surplus decreases by A + B + C + D; -producer surplus increases by A; -country net loss is B + C + D = C + E. Notice that: -area C is the border price effect = higher price for imported units; -area E is the import volume effect = loss from drop in imports.
© The McGraw-Hill Companies, 2012 Preliminaries II: export supply curve Export supply curve (from foreign countries) = import supply curve: it represents how much foreign countries would export for any given domestic price. What happens if export price increases from P′ to P′′? The following graph shows that: -consumer surplus decreases by A + B; -producer surplus of foreign firms increases by A + B + C + D + E; -foreign country net gain is C + D + E = D + F. Notice that: -area D is the border price effect = higher price for exported units; -area F is the trade volume effect = gain from increase in exports.
© The McGraw-Hill Companies, 2012 Preliminaries II: export supply curve
© The McGraw-Hill Companies, 2012 The workhorse diagram: MD-MS Import supply curve and import demand curve allow us to find equilibrium price and quantity of imports.
© The McGraw-Hill Companies, 2012 MFN tariff analysis What is the effect of the introduction of a tariff of T euros per unit? Work out how the tariff changes the MD–MS diagram: -introduction of tariff has no effect on MD; -introduction of tariff shifts MS curve up by T: exporters would need a domestic price that is T higher to offer the same exports since they earn the domestic price minus T.
© The McGraw-Hill Companies, 2012 MFN tariff analysis
© The McGraw-Hill Companies, 2012 MFN tariff analysis New equilibrium: -home price rises to P′; -the border price (i.e., the price Home pays) falls to P′ – T; this also means that the price received by Foreigners falls to P′ – T; -the Home import volume falls to M′. Moreover, the higher domestic price stimulates production and discourages consumption (not visible in previous graph).
© The McGraw-Hill Companies, 2012 Welfare effects of a tariff The MFN tariff raises the Home price of the good (to P′) while lowering the border price (to P′ − T): -Home consumers lose A + B + C + D; -Home producers gain A; -Home government gains tariff revenue C + E; -net Home welfare effect is E − B − D, positive or negative depending upon the size of the tariff; -Foreign consumers gain F; -Foreign firms lose F + G + H + I; -net Foreign welfare effects is −G − H − I (negative regardless of the tariff’s size).
© The McGraw-Hill Companies, 2012 Welfare effects of a tariff
© The McGraw-Hill Companies, 2012 Tariffs as a tax on foreigners A tariff might make the Home country better or worse off: there are two parts of Home’s net welfare impact, namely L − K; -area L is the border price effect (i.e., gain from paying less for imports); -area K is the trade volume effect (i.e., impact of lowering imports); In other words, area L represents Home’s gain from taxing foreigners while area K represents an efficiency loss from the tariff. If T raises Home welfare, the tariff allows the Home government to indirectly tax foreigners enough to offset the tariff’s inefficiency effects on the Home economy.
© The McGraw-Hill Companies, 2012 Types of protection Many ways to categorize trade barriers. Focusing on trade rents: -DCR (domestically captured rents) like tariffs, import licences; -FCR (foreign captured rents) like price undertakings, export taxes. -frictional (no rents since barriers involve real costs of importing and exporting) like regulations and red-tape.
© The McGraw-Hill Companies, 2012 Types of protection Net Home welfare changes for: -DCR = B − C; -FCR = −A − C. Net Foreign welfare changes for: -DCR = −B − D; -FCR = A − D. Note: foreign may gain from FCR..
© Baldwin & Wyplosz 2006 The Economics of European Integration.
© Baldwin&Wyplosz The Economics of European Integration 1 Chapter 4: Essential Micro Tools.
ECON International Economics Chapter 5 Protectionism and Free Trade.
© R.Baldwin & C. Wyplosz Baldwin & Wyplosz The Economics of European Integration Chapter 4: Basic Economics of Preferential Liberalisation “A careful presentation.
Goods Prices and Factor Prices: The Distributional Consequences of International Trade Nothing is accomplished until someone sells something. (popular.
Trade Policy (Tariffs, Subsidies, VERs) 2/22/2012 Unit 2: Trade Policy.
© R.Baldwin & C. Wyplosz Baldwin & Wyplosz The Economics of European Integration Chapter 4: Basic Economics of Preferential Liberalisation This presentation.
The Impact of Trade Policies Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Chapter 14.
Nations and firms in the global economy; Cambridge University Press, 2006© Charles van Marrewijk, 2005; 1 Tariff, partial equilibrium; 1 Countries may.
1 of 59 Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e. Chapter 9: Import Tariffs and Quotas under Imperfect Competition.
© Baldwin & Wyplosz The Economics of European Integration, 2 nd Edition 1 Essential Micro Tools.
INTERNATIONAL TRADE Objectives After studying this chapter, you will be able to: Explain how a country can gain from international trade Explain.
Chapter 2 The Basic Theory Using Demand and Supply.
INTERNATIONAL ECONOMICS: THEORY, APPLICATION, AND POLICY; Charles van Marrewijk, 2012; 1 Tariff, partial equilibrium Countries may restrict trade in.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. Chapter 9 The Instruments of Trade Policy.
Chapter 8 Analysis of a Tariff. A tariff is a tax on importing a good or service into a country. Types of tariffs: Specific tariff is stipulated as a.
8-1 Chapter 8 The Instruments of Trade Policy. 8-2 Preview Partial equilibrium analysis of tariffs: supply, demand and trade in a single industry Costs.
Charles van Marrewijk Tariff, partial equilibrium; 1 Countries may restrict trade in several ways. For example, they may Impose a 100 Euro tax per imported.
Chapter 6 The Theory of Tariffs and Quotas. Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 6-2 Chapter Objectives Introduce the theory.
International Economics Li Yumei Economics & Management School of Southwest University.
CHAPTER 8. Import tariffs Export subsidies Import quotas Voluntary export restraints (VER) Local content requirements Copyright © 2009 Pearson.
March Chapter 8 The Instruments of Trade Policy.
CHAPTER 7 ANALYSIS OF A TARIFF. 2 The concept of tariff A tariff is a tax on importing a good service into a country, usually collected by customs officials.
© 2008 Pearson Addison Wesley. All rights reserved Chapter Nine Properties and Applications of the Competitive Model.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 8-1 Effective Rate of Protection The effective rate of protection measures how much protection.
© The McGraw-Hill Companies, 2012 Chapter 5: The essential economics of preferential liberalization …the ideas of economists and political philosophers,
Chapter 6: Trade Policy Analysis An Introduction to International Economics: New Perspectives on the World Economy © Kenneth A. Reinert, Cambridge University.
Principles of Microeconomics & Principles of Macroeconomics: Ch.9 First Canadian Edition International Trade Chapter 9 Copyright (c) 1999 Harcourt Brace.
Slides prepared by Thomas Bishop Chapter 8 The Instruments of Trade Policy.
A Basic Primer on Trade Policy A Basic Primer on Trade Policy Dr. Andrew L. H. Parkes “Practical Understanding for use in Business” 卜安吉.
Calculating Protectionism (HL). Let’s look at the domestic market for cooking oil and tariffs. 1. Indicate the domestic equilibrium price and quantity.
Economics of Trade Liberalization and Integration Jan Fidrmuc Brunel University.
International Economics International Economics Tenth Edition Trade Restrictions: Tariffs Dominick Salvatore John Wiley & Sons, Inc. Salvatore: International.
1 An Introduction to International Economics Second Edition Trade Restrictions: Tariffs Dominick Salvatore John Wiley & Sons, Inc. CHAPTER F I V E.
Trade barriers. Types of barriers Tariffs = a tax on imported goods Import quotas = a limit on the amount that can be imported Nontariff barriers (NTBs)
Chapter 9 International Trade. The Determinants of Trade Without international trade, domestic supply & domestic demand meet at an equil. price. World.
Social Welfare and Policy Analysis. Measuring the Gains from Trade Whenever an exchange (or trade) takes place between a consumer and a producer, both.
LECTURE #8: MICROECONOMICS CHAPTER 9 Determinants of Trade Arguments for Restricting Trade.
Let´s talk something about subsidies... Subsidy is a payment to a firm or individual that ships a good abroad. The effects of an export subsidy on prices.
Chapter Nine Applying the Competitive Model. © 2007 Pearson Addison-Wesley. All rights reserved.9–2 Applying the Competitive Model In this chapter, we.
Trade and welfareslide 1 S D Q P Q* P* = $1 The diagram below shows the U.S. domestic market for water. No trade is taking place. WATER MARKET.
MONOPOLY 12 CHAPTER. Objectives After studying this chapter, you will able to Explain how monopoly arises and distinguish between single-price monopoly.
1 INTERNATIONAL TRADE Principles of Microeconomic Theory, ECO 284 John Eastwood CBA Harmonized tariff schedule (HTS)
Chapter 15 Market Interventions McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.
McGraw-Hill/Irwin © 2012 The McGraw-Hill Companies, All Rights Reserved Chapter 8: Analysis of a Tariff.
CHAPTER 6 Consumer and Producer Surplus PowerPoint® Slides by Can Erbil © 2004 Worth Publishers, all rights reserved.
Supply. Labor and output One basic question every business owner must answer is how many workers to hire Marginal product of labor: the change of.
© 2017 SlidePlayer.com Inc. All rights reserved.