Tarriffs and quotas with perfect competition

Question 1

trade policy

Answer 1

any government action designed to influence the quantity of imports or exports

Question 2

import tarrifs

Answer 2

taxes on imported goods

Question 3

import quotas

Answer 3

direct limitations on the quantity of a goof that can be imported

Question 4

export subsidies

Answer 4

government payments rewarding firms that export some of their product

Question 5

how do trade policies affect economic welfare?

Answer 5

they change the prices that people pay and the prices firms receive for goods

Question 6

how is a supply deficit fixed?

Answer 6

by allowing for imports

Question 7

Import Demand

Answer 7

quantity of imports demanded by a country as a function of the world price of the product

Question 8

Export Demand

Answer 8

quantity of exports supplied by a country as a function of the world price of the product

Question 9

how is an import demand curve constructed?

Answer 9

You plot the difference in supply and demand for a product at every price point

Question 10

what is the intercept of the import demand curve?

Answer 10

the autarky price in the importing country

Question 11

what is the intercept of the export demand curve?

Answer 11

the autarky price in the exporting country

Question 12

free trade

Answer 12

Frictionless trade. No tarrifs, no quotas

Question 13

how does the introduction of trade affect the exporting country?

Answer 13

increases price of the good. Helps foreign producers and hurts foreign consumers

Question 14

how does the introduction of trade affect the importing country?

Answer 14

decreases price of the good. Helps home consumers and hurts home producers

Question 15

Consumer Surplus

Answer 15

the difference between the highest price someone is willing to pay for a good and the price that all consumers actually pay for it

Question 16

when consumer surplus increases, what do the 2 shapes that make up the increase represent?

Answer 16

The rectangle represents people who were already willing to pay at a higher price, and the triangle represents people who were not willing to pay at a higher price and now are

Question 17

producer surplus

Answer 17

the difference between the price a firm gets from its prouct and the marginal cost of production

Question 18

what represents the the lowest price a producer is willing to sell their product for?

Answer 18

the marginal cost of production

Question 19

when producer surplus decreases, what do the 2 shapes that make up the decrease represent?

Answer 19

the rectangle represents the loss to producers who continue to sell at a reduced price, and the triangle represents the loss to producers who left the markets because of a lower price

Question 20

Net game from trade for the world

Answer 20

the difference between the autarky price in the 2 countries multiplied by the quantity of trade

Question 21

what do import tariffs do to small countries?

Answer 21

they reduce social welfare

Question 22

what do import tariffs do to small countries?

Answer 22

they increase social welfare

Question 23

how does p* change for a small country?

Answer 23

it doesn’t, its fixed

Question 24

what is the shape of the export supply curve if it’s dealing with a small importing country?

Answer 24

completely flat, perfectly elastic

Question 25

where does net gain from trade go?

Answer 25

to the importing country

Question 26

what does distortion caused by tariffs cause itself?

Answer 26

-deadweight loss
-artificially raises the price
-that causes firms to produce too much of the imported good
-consumers buy too little

Question 27

what does the triangle under the demand curve in the home country market diagram represent?

Answer 27

consumption loss or consumption distortion

Question 28

what does the triangle under the supply curve in the home country market diagram represent?

Answer 28

production loss/distortion, efficiency loss

Question 29

what do production loss and consumption loss make when combined?

Answer 29

dead weight loss

Question 30

what happens relating to quantity and world price when a large country implements a tarrif?

Answer 30

the quantity is limited and then the world price depresses

Question 31

coolio

Answer 31

fact: price does not increase by the full amount of the tariff in the importing country

Question 32

What is the definition of a small country?

Answer 32

A country that cannot in any way influence the price of a product in the rest of the world. They are a price taker.

Question 33

what does a tariff do for consumers?

Answer 33

it reduces consumer surplus

Question 34

what does a tariff do for producers?

Answer 34

it increases producer surplus

Question 35

what does a tariff do for government?

Answer 35

it gives it revenue that can then be distributed

Question 36

terms-of-trade-gain

Answer 36

stolen gain from trade

Question 37

terms-of-trade-gain equation

Answer 37

difference between free trade price and world price, multiplied by q of trade

Question 38

what do tariffs force exporters to do?

Answer 38

cut their price

Question 39

what does an exporting country that experiences a terms-of-trade-loss also experience?

Answer 39

dead weight loss

Question 40

what does a lower price caused by a tariff result in?

Answer 40

producing too little and consuming too much of a good which a country has comparative advantage in

Question 41

how do you calculate total loss to exporters?

Answer 41

DWL + terms-of-traide-gain

Question 42

Optimal Tariff

Answer 42

a tariff that maximizes a country’s social welfare

Question 43

optimal tariff

Answer 43

1/elasticity of export supply

Question 44

elasticity of export supply

Answer 44

% increase in quantity of exported when the price increases by 1%

Question 45

why is a quota license valuable

Answer 45

because the holder can buy for low at the world market and sell high domestically