Graphing Tariffs in International Trade---AP Microeconomics

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International Trade : International Trade “How much is the Tariff on the Doggie in the Window”

PowerPoint Presentation : D* S* P domestic Q e Price Of ___ Quantity of __________ The Market Equilibrium In a closed economy (does not trade with the Rest of the world) . It is In a state of AUTARKY.

PowerPoint Presentation : D* S* P domestic Q e Price Of ___ Quantity of __________ Assume now this Economy opens itself To trade. And the World Price of this good is P world P world Q d1 Q 1 s

PowerPoint Presentation : D* S* P domestic Q e Price Of ___ Quantity of __________ The World Price of this good is now P world which is BELOW the Domestic price of P domestic . At P world Domestic S uppliers only supply Qs1 but at P world Domestic Demanders Demand Qd1. QUANTITY DEMAND EXCEEDS DOMESTIC QUANTITY SUPPLIED. The difference (Qd1 – Qs1) is made up through IMPORTS P world Q d1 Qs 1 IMPOR TS

PowerPoint Presentation : D* S* P domestic Q e Price Of ___ Quantity of __________ Domestic Suppliers are not going to be Happy with this situation. They are likely To seek protection from this lower priced Competition by lobbying for a tariff on the Import of the good. A tariff is a tax on an Imported good. P world Q d1 Qs 1 IMPOR TS

PowerPoint Presentation : D* S* P domestic Q e Price Of ___ Quantity of __________ Assume the tariff is impose and it raised The price of the good to P w/Tariff. Now Qs2 will be supplied domestically and Qd2 Will be demanded domestically. Qd2 – Qs2 will still be imported but imports will be less than they were before the tariff. P world Q d1 Qs 1 IMPOR TS P w/Tariff Q s2 Q d2 IMPORTS IMPORTS After Tariff

PowerPoint Presentation : D* S* P domestic Q e Price Of ___ Quantity of __________ What are the “social costs” of the tariff? P world Q d1 Qs 1 IMPOR TS P w/Tariff Q s2 Q d2 IMPORTS IMPORTS After Tariff Area of Dead Weight Loss (DWL) to CONSUMERS . Domestic consumers get to “enjoy” less of the good at lower prices.

PowerPoint Presentation : D* S* P domestic Q e Price Of ___ Quantity of __________ What are the “social costs” of the tariff? P world Q d1 Qs 1 IMPOR TS P w/Tariff Q s2 Q d2 IMPORTS IMPORTS After Tariff Dead Weight Loss (DWL) to CONSUMERS. Domestic consumers get to “enjoy” less of the good at lower prices. Dead Weight Loss (DWL) to SOCIETY. Domestic resources Are now being used to Produce the good that could Have been used somewhere Else…OPPORTUNITY COST !

PowerPoint Presentation : D* S* P domestic Q e Price Of ___ Quantity of __________ P world Q d1 Qs 1 P w/Tariff Q s2 Q d2 IMPORTS IMPORTS After Tariff Tax Revenue Area of Tax Revenue (Tariff x Qd2 – Qs2)

PowerPoint Presentation : D* S* P domestic Q e Price Of ___ Quantity of __________ P world Q d1 Qs 1 IMPORTS P w/Tariff Q s2 Q d2 IMPORTS A B C D E F G I H J K L M N I Identify the Areas below using the letters Area of CS before Trade Area of PS before Trade Area of CS after Trade Area of PS after Trade Area of CS after Tariff Area of PS after Tariff DWL for Consumers DWL for Society Area of Tax Revenue Imports before tariff Imports after tariff

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