ECON 1101 1st Edition Lecture 17Outline of Last Lecture I. Carbon EmissionsII. New Issue: International TradeIII. Impacts of Tariffs and QuotasOutline of Current Lecture II. Tariffs (continued)a. Sugar Applicationb. Oil ApplicationIII. Production Possibility Frontiera. Robinson Crusoe ApplicationCurrent LectureWhen a tariff is imposed there is less consumer surplus and more producer surplus.There are inefficient producers producing which creates a dead weight loss because of the tariff price being above the world price, so more domestic producers produce that have a price abovethe world price. A tariff causes lower total surplus than a free market would.Quotas are almost exactly the same, except they limit the amount imported. Government limits the quantity, which in turn raises the price. Lower quantity of imports can sell for a higher price when there is a quota.Difference between a quota and a tariff is the government revenue from a tariff goes to foreign producers. This might be good for enhancing positive foreign relationships.Application: There is no pareto improvement with free trade because consumers are better off. The producers kind of get pooped on. B/c of quota in the United States, the price of sugar is TWICE of what it is in the rest of the world. Suppose we now had free trade on sugar. Doing this would cause job loss in the United States 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.because domestic producers cannot compete with low international prices. Possible solutions tothis could be compensation by retraining those who lost their job to a different skill or trade.An alternative would also be making factories in Canada or Mexico where sugar is cheap. Then import the candy back to the United States tariff-free.What about a ban on exports?(for example the United States not allowing oil to be exported)It allows the consumer to be better off (if the domestic price is lower than the world price). For example if the world price was $7 and the domestic price was $5, with a ban on exports, consumers would pay the $5 domestic price because there would be no world influence on the oil market.If the export ban was lifted, the producers would be better off because they can sell their oil for $2 more than the equilibrium cost in the domestic market.Production Possibility Frontier (PPF)PPF shows different combinations available to societyExample: Robinson CrusoeWorks: 8 hours/day In one hour:3 Fish OR 1 CoconutIn one day:24 Fish or 8 CoconutsSplit?:12 fish or 3 coconutsAutarky: country NOT open to trade. (in example Robinson produces everything for himself and consumes everything he produces himself)PPF line on graph is all EFFICIENT combinations possible.Above the PPF line is UNATTAINABLE.Below the PPF is ATTAINABLE but NOT efficient.Slope of PPF line on graph is the opportunity cost of 1 more X (in terms of Y) because you have to “spend”