ECON 503 Lecture Notes - Lecture 9: Demand Curve, Permanent Normal Trade Relations, North American Free Trade Agreement
20 Oct 2016
Department
Course
Professor
Document Summary
Welfare gains from trade are a little bit hypothetical. Rarely goes from complete self-sufficiency to complete openness to trade. More relevant debate is over size and scope of trade barriers. One rare example is the jeffersonian trade embargo of 1807-1809. Early 1800s had napoleonic wars between britain and france. Britain searched and seized and impressed service onto american ships. Instead of declaring war on britain, enacted trade embargo on all countries. Estimated that effect of embargo on imports and exports was equal to a 60% tariff on all imports. If trade:gdp ratio is high (trade a lot), then effect will be drastic. Substitution between foreign and domestic goods in production. If there are not easy substitutes, welfare effects increase. If there are easy substitutes for foreign and domestic goods, welfare effects are low. Substitution between foreign and domestic goods in consumption. If there are not substitutes, welfare effects increase. Embargo cost the us . 3 million to . 7 million in 1808.
