TARIFFS & IMPORT QUOTAS
Domestic D & S D si s w/ International trade
(Autarky )
# wonamut.es#..oo
so
S s
50
40
40
Cs
30
.
30 CS
20
! .
20 60 So I 00
40
°
Domestic production
= 20 Units
°
100 Units Imported
o international trade benefits
mostly
consumers
Import Quota of 40 Units
Tariff of $10 per
# ,o¥i
so
unit
so D
/
40
40
CS
30
30 CS
20
20
,
too
20 40 60 80
S
20 40 60 So too
•
Consumer Surplus decrease '
o
on
°
Producer Surplus increases
every unit imported , price is
$10 ( the the tawtt)
raised
by amount
of
°
Quota decreases
supply
o
has Ps
same
impact as
quota on Css:
Increases domestic price BIT generates Revenue & DWL
revenue
°
TARIFF =
amount of tariff
quantity imported
x
•
decrease, Cs =
$10 x 40 =
$400
> decrease , Ts
Increase , ps
'
, Socially efficient quantity is where MSB =
MSC
CAP N TRADE ( Marketable permits)
failure (overprotection)
negative
→
externality
o
market
↳ SO , ①
Caps the
gov .
quantity of production
2
Sets up market for firms to trade permits
firms w/ abatement technology all their
permits
Cme then
gov Sets the quantity
o
and
price adjusts
.
the
both lead to
taxi then the efficient
. o
gov . sees
price and
quantity adjusts socially
equilibrium
Dumping when
foreign firm sells its exports at lower than
:
price
the cost of production
cost of production > export price
Vouchers → Increase MPB
, TAXES -
TAX ON SELLERS
shifts supply
o
curve left
by the tax
think
°
S
:
it increases production costs
+
tax
°
Increases
g
min .
supply by amt of tax
Quantity
°
exchanged decreases ,
consumer price Increases
Ear
consumer price
a.
Buyers
EQI
sellers less than before)
Price ( after tax)
+ a× pay more ,
relieve
D
sellers
relieved
by
TAX ON BUYERS
Shifts
°
demand curve left
by the tax
0 think :
it decreases WTP
+
tax
°
Increases
g
min .
supply by amt of tax
Quantity
°
tax
exchanged decreases ,
consumer price Increases
consumer price
Buyers
EQI
Sellers less Ahan before,
Price relieved *.
pay more ,
relieve
sellers D
by D + tax
Summary doesn't matter whether suppliers 1 buyers write them to the
:
pay
tax ,
outcome is
equivalent
↳ tax drives a
wedge
( what Sellers Riehl diff amt of the tax what the
gov
receives
buyers pay than
-
the
.
more , =
S
( don't need to shift the curve, jut drive a
wedge)
••
B
Buyer price =
$2.65
tax $1
wedge = •
D
sellers relieve = $1.65
D
Domestic D & S D si s w/ International trade
(Autarky )
# wonamut.es#..oo
so
S s
50
40
40
Cs
30
.
30 CS
20
! .
20 60 So I 00
40
°
Domestic production
= 20 Units
°
100 Units Imported
o international trade benefits
mostly
consumers
Import Quota of 40 Units
Tariff of $10 per
# ,o¥i
so
unit
so D
/
40
40
CS
30
30 CS
20
20
,
too
20 40 60 80
S
20 40 60 So too
•
Consumer Surplus decrease '
o
on
°
Producer Surplus increases
every unit imported , price is
$10 ( the the tawtt)
raised
by amount
of
°
Quota decreases
supply
o
has Ps
same
impact as
quota on Css:
Increases domestic price BIT generates Revenue & DWL
revenue
°
TARIFF =
amount of tariff
quantity imported
x
•
decrease, Cs =
$10 x 40 =
$400
> decrease , Ts
Increase , ps
'
, Socially efficient quantity is where MSB =
MSC
CAP N TRADE ( Marketable permits)
failure (overprotection)
negative
→
externality
o
market
↳ SO , ①
Caps the
gov .
quantity of production
2
Sets up market for firms to trade permits
firms w/ abatement technology all their
permits
Cme then
gov Sets the quantity
o
and
price adjusts
.
the
both lead to
taxi then the efficient
. o
gov . sees
price and
quantity adjusts socially
equilibrium
Dumping when
foreign firm sells its exports at lower than
:
price
the cost of production
cost of production > export price
Vouchers → Increase MPB
, TAXES -
TAX ON SELLERS
shifts supply
o
curve left
by the tax
think
°
S
:
it increases production costs
+
tax
°
Increases
g
min .
supply by amt of tax
Quantity
°
exchanged decreases ,
consumer price Increases
Ear
consumer price
a.
Buyers
EQI
sellers less than before)
Price ( after tax)
+ a× pay more ,
relieve
D
sellers
relieved
by
TAX ON BUYERS
Shifts
°
demand curve left
by the tax
0 think :
it decreases WTP
+
tax
°
Increases
g
min .
supply by amt of tax
Quantity
°
tax
exchanged decreases ,
consumer price Increases
consumer price
Buyers
EQI
Sellers less Ahan before,
Price relieved *.
pay more ,
relieve
sellers D
by D + tax
Summary doesn't matter whether suppliers 1 buyers write them to the
:
pay
tax ,
outcome is
equivalent
↳ tax drives a
wedge
( what Sellers Riehl diff amt of the tax what the
gov
receives
buyers pay than
-
the
.
more , =
S
( don't need to shift the curve, jut drive a
wedge)
••
B
Buyer price =
$2.65
tax $1
wedge = •
D
sellers relieve = $1.65
D
