【正文】 , Inc. How Free Trade Affects Welfare in an Importing Country... Price of Steel 0 Quantity of Steel Domestic supply World Price Domestic demand Price after trade Price before trade A B C D Imports Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. International Trade and the Importing Country If the world price of steel is lower than the domestic price, the country will be an importer of steel when trade is permitted. Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Price of Steel 0 Quantity of Steel World price Domestic demand How Free Trade Affects Welfare in an Exporting Country... Domestic supply Price after trade Price before trade A Consumer surplus before trade B C Producer surplus before trade Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. World Price and Comparative Advantage If the country does not have a parative advantage, then the domestic price will be higher than the world price, and the country will be an importer of the good. Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Equilibrium Without Trade Results: ?Domestic price adjusts to balance demand and supply. ?The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive. Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. International Trade Who gains and who loses from free trade among countries? Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Deadweight Loss and Tax Revenue Vary with the Size of the Tax... (b) Revenue (the Laffer curve) Tax Revenue 0 Tax Size Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Deadweight Loss and Tax Revenue... PB Quantity Q2 0 Price Q1 Demand Supply Tax revenue PS Deadweight loss (a) Small Tax Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Tax Distortions and Elasticities... Quantity Price Demand Supply 0 When supply is relatively inelastic, the deadweight loss of a tax is small. (a) Inelastic Supply Size of tax Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. The Effects of a Tax... Price 0 Quantity Quantity without tax Supply Demand Price without tax Price buyers pay Quantity with tax Size of tax Price sellers receive Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Summary ?The fall in total surplus – the sum of consumer surplus, producer surplus, and tax revenue – is called the deadweight loss of the tax. Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Deadweight Loss and Tax Revenue Vary with the Size of the Tax ?As the size of a tax increases, its deadweight loss quickly gets larger. ?By contrast, tax revenue first rises with the size of a tax。 2020 by Harcourt, Inc. PB Quantity Q2 0 Price Q1 Demand Supply PS Deadweight loss Deadweight Loss and Tax Revenue... (c) Large Tax Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. The Deadweight Loss Debate Some examples of workers who may respond more to incentives: ?Workers who can adjust the number of hours they work ?Families with second earners ?Elderly who can choose when to retire ?Workers in the underground economy (. those engaging in illegal activity) Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Tax Distortions and Elasticities... Quantity Price Demand Supply 0 When demand is relatively inelastic, the deadweight loss of a tax is small. (c) Inelastic Demand Size of tax Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. The Deadweight Loss... Quantity 0 Price Demand Supply Q1 PB Price = P1 without tax PS Q2 Size of tax Lost gains from trade Cost to sellers Value to buyers Reduction in quantity due to the tax Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. How a Tax Affects Welfare... Quantity 0 Price Demand Supply Q1 A B C F D E Q2 Tax reduces consumer surplus by (B+C) and producer surplus by (D+E) Tax revenue = (B+D) Deadweight Loss = (C+E) Price buyers pay = PB P1 Price without tax = PS Price sellers receive = Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. The Effects of a Tax... Price 0 Quantity Quantity without tax Supply Demand Price without tax Price buyers pay Quantity with tax Size of tax Price sellers receive Harcourt, Inc. items and derived items copyright 169。Application: The Costs of Taxation Chapter 8 Copyright 169。 2020 by Harcourt, Inc. The Costs of Taxation It does not matter whether a tax on a good is levied on buyers or sellers of the good…the price paid by buyers rises, and the price received by sellers falls. Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Tax Revenue... Price 0 Quantity Quantity without tax Supply Demand Price sellers receive Quantity with tax Size of tax (T) Quantity sold (Q) Tax Revenue (T x Q) Price buyers pay Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Deadweight Losses and the Gains from Trade Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of t