AP Microeconomics AMSCO Guided Notes
2.9: International Trade and Public Policy
AMSCO Guided Notes
AP Microeconomics Guided Notes
AMSCO 2.9 - International Trade and Public Policy
Essential Questions
- How do government policies involving international trade affect consumer behavior, producer behavior, and market outcomes?
I. The Effects of International Trade
1. What is international trade and why do countries engage in it?
2. How does comparative advantage explain which goods countries will export?
A. Impact on Equilibrium Price
1. How does international trade affect the equilibrium price and quantity demanded of a product?
2. Using the coffee example, explain how trade benefits some groups while harming others in both countries.
1. Conditions Under Autarky
1. What is autarky and how does it differ from an economy that participates in international trade?
B. Impact on Consumer Surplus, Producer Surplus, and Total Surplus
1. How does international trade affect consumer surplus and producer surplus?
2. Why does total economic surplus tend to increase with international trade?
II. Tariffs
1. What is a tariff and what are the main reasons governments impose them?
A. Domestic Prices
1. How do tariffs affect the prices of imported goods and domestic manufacturers' pricing decisions?
B. Quantities Supplied
1. What are the two effects tariffs have on quantities supplied in a market?
2. How do tariffs affect the quantity supplied by domestic producers versus the total quantity supplied to the market?
C. Increased Government Revenues
1. How have tariffs historically contributed to government revenues, and what changed after 1913?
D. Impact on Consumer Surplus, Producer Surplus, and Total Surplus
1. How do tariffs affect consumer surplus and producer surplus differently?
2. What is deadweight loss and why does it occur when tariffs are imposed?
3. Where does the lost consumer surplus go when a tariff is imposed?
III. Quotas
1. What is a quota and how does it function as a form of protectionism?
2. What are the three main types of quotas that governments can impose?
A. Impact on Price, Quantity, and Surplus
1. How do quotas affect prices, quantity purchased, and consumer surplus compared to free trade?
2. How does the impact of quotas on producer surplus and deadweight loss compare to the impact of tariffs?
B. Japan's Experience
1. How did Japan's use of quotas on foreign imports contribute to its economic growth in the 1960s and 1970s?
2. How did the U.S.-Japan trade war of the 1980s lead to changes in Japanese business strategy?
IV. International Trade Opens Markets
1. How did wealthy countries historically use tariffs and quotas to develop their industries?
2. What are the benefits and drawbacks of moving toward freer trade for consumers and workers?
Key Terms
tariffs
international trade
comparative advantage
consumer surplus
producer surplus
total economic surplus
protectionism
quotas