⏱️ November 15, 2020
International trade allows all countries around the world to expand their markets and makes goods and services available to their population that might not be available domestically. International trade increases the variety of goods and services available to the population while creating a sense of competition, which in turn lowers prices for consumers. Public policy is just simply the laws and regulations that govern economic activity. There are many trade agreements in place to govern international trade, such as NAFTA (North American Free Trade Agreement) and ASEAN (Association of Southeast Asian Nations). For example, in the United States, our largest trading partners are China, Canada, and Mexico. We participate in international trade because it is cheaper for us to trade for the goods than to produce them domestically (i.e. shoes, clothing, electronics).
A quota is a government-imposed limit on production levels. This means that it limits the amount of a particular good that can come into a country from somewhere else. Quotas are used as a trade barrier in an effort to protect the domestic industries that produce similar goods.
On the graph below, we see what a graph of a tariff looks at. The green triangle is consumer surplus, the yellow shaded area is producer surplus and the orange triangle is deadweight loss. P_E and Q_E are the equilibrium price and quantity, respectively, before the quota. Q_Q is the quota limit on how much of the good can come into the country. P_Q is the price of the good when the quota is in effect.
Tariffs are simply a tax on a foreign good coming into a country. There are levied in an effort to reduce the amount of a particular good coming into a country by raising the price of the good.
The graphs that deal with tariffs and international trade are used to show what market price is before any international trade (closed borders), market price when there are no restrictions on trade (open borders), and market price when there are tariffs placed by the government to control the importation of certain goods and services.
On the AP Exam they sometimes will ask you to identify consumer and producer surplus under certain conditions or the change in consumer surplus and producer surplus.
💸 Unit 1: Basic Economic Concepts
1.0Unit 1: Basic Economic Concepts
1.1Basic Economic Concepts: Scarcity
1.2Resource Allocation and Economic Systems
1.3Production Possibilities Curve (PPC)
📈 Unit 2: Supply and Demand
2.4Price Elasticity of Supply
2.6Market Equilibrium and Consumer and Producer Surplus
2.7Market Disequilibrium and Changes in Equilibrium
2.8The Effects of Government Intervention in Markets
⚙️ Unit 3: Production, Cost, and the Perfect Competition Model
3.6Firms' Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market
📊 Unit 4: Imperfect Competition
4.1Introduction to Imperfectly Competitive Markets
💰 Unit 5: Factor Markets
5.2Changes in Factor Demand and Factor Supply
5.3Profit-Maximizing Behavior in Perfectly Competitive Factor Markets
🏛 Unit 6: Market Failure and Role of Government
6.1Socially Efficient and Inefficient Market Outcomes
6.3Public and Private Goods
6.4The Effects of Government Intervention in Different Market Structures
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