ECO349H5 Lecture Notes - Lecture 3: Economic Surplus, Import Quota, Opportunity Cost

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15 May 2017
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D=120-2p, s=2p-40, world price is , at first, government doesnt allow import/export, after, government allow the free trade. D=120-2p, s=2p-40, world price is , at first, government doesnt allow import/export, after, government allow the free trade. Then the government set an import quota of 300units. D=240-2p, s=2p, world price is , then the government implement a tariff of . If mrs=o. c, no difference between good x and y. Substitute effect (se): same for normal and inferior good. Normal good: price , q or price , q (enforce the se) Inferior good: price ,q or price , q (opposite as se) If the ie dominants the se, it is a special inferior good, called giffen good. Example 4 (px : directly showed in the question) px government introduce per-unit tax. Practice: example 5 (px : government introduced per-unit subsidy) M=1800, u=xy, px=, py=, afterwards, government pays per unit subsidy on good x.

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