ECO204Y5 Lecture Notes - Lecture 28: Import Quota, Economic Equilibrium, Autarky
Document Summary
Government: - c e f. } net effect: cs + ps + govt = - b c + b +c +f c e f = - c - e. With trade, additional competition among firms should decrease the price: pworld < pclosed econ. Now treat pworld as the initial, pc equilibrium without govt intervention (import quota, tariff) this is the new benchmark. Idea: both import quotas and tariffs are aimed to help domestic producers. Import quota: restriction on the number of foreign produced goods allowed to enter country reduce # of competitors domestic producers face: tariffs raise the equilibrium price that domestic producers can charge for their goods. Import quote: consumers, original cs: a+b+c+d+e+f+g+h+i, new cs: a+b+c+d, ove(cid:396)all: -e-f-g-h-i, producers, original ps: j, new ps: e+j, ove(cid:396)all: e, government: no effect, net effect on economy: -e-f-g-h-i+e = -f-g-h-i, dwl: f+g+h+i. = g+h: net effect: (-e-f-g-h-i) + e + (g+h) = -f-i, dwl = f+i.
