Economics 1021A/B Lecture Notes - Deadweight Loss, Export Subsidy, Import Quota
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Oct 26, 2011
Economics – Lecture #12
International Trade Restrictions
Governments intervene in international trade to protect domestic producers from
Governments use four sets of tools:
o A tax on a good that is imposed by the importing country when an
imported good crosses its international boundary.
Raises the price, more is supplied, less is imported
o Winners, Losers, an Social Loss from a Tariff
Canadian consumers lose because higher price and smaller
Canadian producers gain because they can sell them at a higher
price so they produce more
Canadian consumers lose more than Canadian producers gain
Society loses: a deadweight loss arises.
o Society Loses: A Deadweight Loss
Some of the loss of consumer surplus is transferred to producers
and some is transferred to the government as tariff revenue.
But the increase in production costs and the loss from decreased
imports is a social loss.
No Tariff Tariff
Oct 26, 2011
No Tariff Tariff – CS shrinks – PS expands
o A restriction that limits the maximum quantity of a good that may be
imported in a given period.
Ex: food products such as meat, eggs, and dairy products and
manufactures such as steel
Raises the price, quantity supplied increases, imports decrease
o Winners, Losers, and Social Loss from an Import Quota
Canadian consumers lose because price rises
Canadian producers of gain because they get to produce more at a
Importers of T-shirts gain
Society loses: a deadweight loss arises
No Import Quota Import Quota