Class 22April 12

Last class: Result of the midterm exam 4. Trade policies of importing nations

Today: 4. Trade policies of importing nations 5. Trade policies of exporting nations Quiz 6 (section 4.1 – 4.3)Next class: 5. Trade polices of exporting nationsReading:Important date:

4. Trade policies of importing countries4. Trade policies of importing countries

4.1. Major types of import barriers

4.2. Reasons for import barriers

4.3. Effects of specific import policies

4.4. Related issues

4.3. Effects of specific import policies (d) Impacts of an import tax: a small importer

Qd = 20 - 1 P Qs = -1 + 2 P

ES faced by the importer: Pw = 5---------------------------------------------------------------------------------------------------

Import P* Qs Qd CS PS Tax CS+PS+Tax

---------------------------------------------------------------------------------------------------

No trade 0 7 13 13 84.5 42.25 0 126.75

Free trade 6 5 9 15 112.25 20.25 0 132.50

An import tax of $1 per unit 3 6 11 14 98 30.25 3 131.25

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Class exercise(Thursday, April 5)

Suppose that a nation has the following supply and demand functions for a product:

Qd = 12 – 0.5P Qs = - 3 + 1 P

We also know that the excess supply for this product in the world market FACED by this nation is Pw = 6

(1) Is this nation a small or large importer of this product?

(2) Draw two graphs to show the impacts of free trade and

calculate the quantity of this nation’s import.

(3) If an import tax of $1 per unit is imposed, what will be the new

quantity of import?

Take-home exercise: calculate CS and PS under (a) no trade, (b) free trade, and (c) trade with a $1 import tax

4.3. Effects of specific import policies (e) Impacts of an import tax: a large importer

Qd = 20 - 1 P

Qs = -1 + 2 P

ES faced by the importer: ES = -1.5 + 2 P---------------------------------------------------------------------------------------------------

Import P* Qs Qd CS PS Tax CS+PS+Tax

---------------------------------------------------------------------------------------------------

No trade 0 7 13 13 84.5 42.25 0 126.75

Free trade w/ no transp. cost 7.5 4.5 8 15.5 120.125 16 0 136.125

An import tax of $1 per unit 6.3 4.9 8.8 15.1 114 19.36 6.3 139.66 ---------------------------------------------------------------------------------------------------

4.3. Effects of specific import policies (f) Impacts of an import quota: a small importer

Qd = 20 - 1 P

Qs = -1 + 2 P

ES faced by the importer: Pw = 5---------------------------------------------------------------------------------------------------

Import P* Qs Qd CS PS Tax CS+PS+Tax

---------------------------------------------------------------------------------------------------

No trade 0 7 13 13 84.5 42.25 0 126.75

Free trade 6 5 9 15 112.25 20.25 0 132.5

An import quota of 3 3 6 11 14 98 30.25 0 128.25

--------------------------------------------------------------------------------------------------- Major difference between an import tax and an import quota: No direct tax revenue under import quota

Who will get the right to import?

4.3. Effects of specific import policies (g) Impacts of an import quota: a large importer

Qd = 20 - 1 P Qs = -1 + 2 P ES faced by the importer: ES = -1.5 + 2 P

--------------------------------------------------------------------------------------------------- Import P* Qs Qd CS PS Tax CS+PS+Tax

---------------------------------------------------------------------------------------------------No trade 0 7 13 13 84.5 42.25 0 126.75

Free trade 7.5 4.5 8 15.5 120.125 16 0 136.125An import quota of 6.3 6.3 4.9 8.8 15.1 114 19.36 0 133.36

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Major difference between an import tax and an import quota:No direct tax revenue under import quota

Who will get the right to import?

4.4. Issues related to import policies (a) Major differences in the impacts of a tariff and a

quota

(b) Fixed domestic prices by importing countries:

A variable import tax (levy) = P - Pw

(c) Is it possible for a large importer to benefit from an import tariff?

A graphic analysis:

(d) Is it possible for a small importer to benefit from an import tax?