【正文】 2020 by Harcourt, Inc. The Arguments for Restricting Trade ?Jobs ?National Security ?Infant Industry ?Unfair Competition ?Protection as a Bargaining Chip Harcourt, Inc. items and derived items copyright 169。 E39。 2020 by Harcourt, Inc. The Effects of a Tariff... Price of Steel 0 Quantity of Steel Domestic supply Domestic demand Tariff World price Q1S Q2S Q2D Q1D Imports without tariff Imports with tariff E Tariff revenue Price with tariff Price without tariff Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Changes in Welfare from Free Trade: The Case of an Importing Country The area D shows the increase in total surplus and represents the gains from trade. Before Trade After Trade Change Consumer Surplus A A + B + D + (B + D) Producer Surplus B + C C B Total Surplus A + B + C A + B + C + D + D Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. How Free Trade Affects Welfare in an Exporting Country The analysis of an exporting country yields two conclusions: ? Domestic producers of the good are better off, and domestic consumers of the good are worse off. ? Trade raises the economic wellbeing of the nation as a whole. Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. World Price and Comparative Advantage If a country has a parative advantage, then the domestic price will be below the world price, and the country will be an exporter of the good. Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. International Trade What determines whether a country imports or exports a good? Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Tax Distortions and Elasticities... Quantity Price Demand Supply 0 Size of tax When demand is relatively elastic, the deadweight loss of a tax is large. (d) Elastic Demand Harcourt, Inc. items and derived items copyright 169。 2020 by Harcourt, Inc. Graphical Review 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. The Deadweight Loss Debate Some economists argue that labor taxes are highly distorting and believe that labor supply is more elastic. 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 the gains from trade. Harcourt, Inc. items and derived items 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. 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. 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. 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. 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. 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. 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. International Trade Who gains and who loses from free trade among countries? 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. 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. How Free Trade Affects Welfare in an Importing Country The analysis of an importing country yields two conclusions: ? Domestic producers of the good are worse off, and domestic consumers of