ECON 100 1st Edition Lecture 12Outline of Last Lecture I. Review of Chapters 1-5A. Important Concepts and Terms Outline of Current Lecture I. Global MarketsA. Imports and exportsB. International Trade C. Gains and Losses from ImportsD. Gains and Losses from ExportsII. International Trade RestrictionsA. TariffsB. Import QuotasC. Other Import BarriersD. Export Subsidies Current Lecture- Global Markets- Because we trade with other countries, the goods and services we are able to buy and consume are not limited to what we are able to produce  Imports: the goods and services that we buy from other countries  Exports: the goods and services that we sell to other countries- International Trade  In 2011: global exports and imports were $22 trillion – one third of the value of global production  The US is the world’s largest international trader – accounting for 10 percent of world exports and 13 percent of world imports  Comparative Advantage drives international trade – National Comparative Advantage is a situation in which a nation can perform an activity or produce a good or service at a lower opportunity cost than any other nation Figure 7.1 shows equilibrium in a market with imports Figure 7.2 shows equilibrium in a market with exports - Gains and Losses From Imports (Figure 7.3)- Measured by examining imports effect on consumer surplus, producer surplus, and total surplus These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. Consumer surplus increases Producer surplus decreases Total surplus increases- Gains and Losses from Exports (Figure 7.4)- Measured by examining exports effect on consumer surplus, producer surplus, and total surplus  Consumer surplus decreases Producer surplus increases Total surplus increases- International Trade Restrictions - Governments use 4 sets of tools to influence international trade and protect domestic industries from foreign competition 1. Tariffs2. Import Quotas3. Other Import Barriers4. Export Subsidies - Tariffs - A tax on a good that is imposed but he importing country when an imported good crosses its international boundary - Tariffs raise revenue for governments and serve the self-interest of people who earn their incomes in import-competing industries  The Effects of a Tariff (Figure 7.5)a. Price rises due to tariff (consumer pays entire amount)b. Quantity bought decreases (due to the increase in price)c. Increase in domestic production (due to the increase in price)d. Decrease in imports (due to the decrease in purchases and increase in domestic production)e. Tariff revenue collected by government  Winners, Losers, Social Loss of a Tariff (Figure 7.6) a. U.S. consumers of the good lose – decrease in consumer surplus due to increase in price and decrease in quantity demandedb. U.S. producers of the good gain – increase in producer surplus due to increase in price and increase in quantity produced c. U.S. consumers lose more than U.S. producers gain d. Society loses – a deadweight loss arises from the increase in production costs and the loss from the decreased imports - Import Quotas - A restriction that limits the maximum quantity of a good that may be imported in a given period - Enable the government to satisfy the self-interest of the people who earn their incomes in the import-competing industries The Effects of an Import Quota (Figure 7.7)a. Price risesb. Quantity bought decreasesc. Increase in domestic production  Winners, Losers, Social Loss of an Import Quota (Figure 7.8)a. U.S. consumers of the good loseb. U.S. producers of the good gainc. Importers of the good gaind. Society Loses e. One difference between a tariff and an import quota: a tariff brings in revenue for the government while a quota brings a profit for the importers - Other Import Barriers- Two sets of policies that influence imports are:1. Health, Safety, and regulation barriers 2. Voluntary Export Restraints – like a quota allocated to a foreign exporter of a good - Export Subsidies- A subsidy is a payment by the government to a producer- An export subsidy is a payment by the government to the producer of an exported good  Illegal under a number of international agreements (NAFTA, WTO)- Bring gains to domestic producers, but result in inefficient underproduction in the rest of the world and create a deadweight