Textbook Notes - Oct 26.docx

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Nicole Wallenburg
Economics
Mr. Parkin
Oct 24, 2011
Economics Textbook Notes
International Trade Restriction
Tariffs
A tariff is a tax on a good that is imposed by the importing country when an imported
good crosses its international barrier.
Tariffs and other restrictions on free international trade decrease the gains from trade and
are not in the social interest
The Effects of a Tariff
o Buyers now have to pay the price, plus the tariff
o Changes:
Price rises
The quantity bought decreases
The quantity produced increases
The quantity imported decreases
There is a tariff revenue
Winners, Losers, and the Social Loss from a Tariff
o Canadian consumers lose
o Canadian producers gain
o Canadian consumers lose more than Canadian producers gain
o Society loses: a deadweight loss arises
Import Quotas
An import quota is a restriction that limits the maximum quantity of a good that may be
imported in a given period.
Import quotas enable the government to satisfy the self-interest of the people who earn
their incomes in import-competing industries. An import quota decreases the gains from
trade and is not in the social interest.
Effect of an Import Quota
o The price rises, the quantity bought decreases, and the quantity produced
in Canada increases
Winners, Losers, and the Social Loss from an Import Quota
o An import quota creates winners and losers that are similar to those of a
tariff but with an interesting difference
o When the government imposes an import quota:
Canadian consumers of the good lose
Canadian producers of the good gain
Importers of the good gain
Society loses: a deadweight loss arises
o A tariff brings in revenue for the government while a quota brings profit
for the importers
Other Import Barriers
Two sets of policies that influence imports are:
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