Topic 2: International Trade Flashcards
if WP < DP
importer
if WP > DP
Exporter
what letters are on a trade graph and a characteristic letter
A B C D (D= imported or exported)
does exporter and importers have surplus or shortage
exporter= surplus inmporter= shortage
why does exporter have surplus
o Domestic price rises to equal world price
o Smaller domestic consumption at Qd (due to higher price) = shift smaller
o Higher production by firms (as price increase)
♣ = Surplus
for exporting, who is better off
- Domestic producers= better off (able to sell at higher price)
- Domestic buyers= worse off (must buy steel at higher price)
why does importers have shortage
o Domestic price lowers to equal world price
o Higher domestic consumption (now at lower price)
o Lower domestic production (lower price)
♣ Shortage
in importing who is better off
- Domestic producers= worse off (have to sell at lower price)
- Domestic buyers= better off (can buy at lower price)
what is a tariff and what group is it only imposed on
imposed on imported goods
importers
what does a tariff attempt to do
- Attempts to arbitrarily raise world price for good of domestic producers
o As under free trade, domestic price= world price
o Tariff raises price of imports above world price by amount of tariff
what are the effects of a tariff on domestic
- As tariff raises price of good:
o Reduces domestic quantity demanded (as higher price)
o Raises domestic quantity supplied (as higher price) - // tariff reduces quantity of imports and moves domestic market closer to its equilibrium trade
who is better of after tariff
o Domestic sellers better off
o Domestic buyers worse off
o Government raises revenue
- Society is worse off (as DWL)/ area D (overproduction) + F (underproduction)
what letters are used in tariff graph and which are special
A B C D E F G
- E= gove rev
- D + F = DWL
