Gains from Trade and Import Tariffs

Flashcards reviewing the gains from trade, consumer and producer surplus, and the effects of tariffs on welfare for both small and large countries.

Consumer Surplus (CS)

The satisfaction that consumers receive from the purchased quantity, over and above the amount they have paid.

Producer Surplus (PS)

The return to fixed factors of production in the industry, or the difference between sales revenue and total variable costs.

Total Home Welfare

The sum of consumer and producer surplus, used to measure the overall well-being of consumers and producers in an economy.

No-Trade Equilibrium (Autarky)

The point where the quantity demanded equals the quantity supplied in the absence of international trade.

Small Country (Price Taker)

A country that is small compared to all other countries buying and selling a product, and therefore its own demand and supply has no influence on the world price.

Home Imports

The difference between Home demand and Home supply at the world price, indicating the quantity of goods imported.

Import Demand Curve

A curve showing the relationship between the world price of a good and the quantity of imports demanded by Home consumers.

Import Tariff

Tax applied at the border on imported goods, increasing the price for Home consumers.

Small Country Tariff Assumption

When a tariff doesn't affect the world price of the good on which the tariff is applied.

Deadweight Loss

The net welfare loss resulting from a tariff, not offset by a gain elsewhere in the economy.

Production Loss

The loss in efficiency for the economy due to producing at marginal costs above the world price.

Consumption Loss

The drop in consumer surplus for those individuals who are no longer able to consume the units because of the higher price due to a tariff.

GATT Article XIX (Safeguard or Escape Clause)

Allows a temporary tariff to be used under certain circumstances, triggered by rising imports causing serious injury to a U.S. industry.

Trade Act of 1974, Section 421 (China-Specific Safeguard)

Clause that allows tariffs to be applied even when rising imports from China are not the most important cause of injury to the domestic industry.

Large Country Tariff Assumption

When a country's tariff does change the world price.

Terms of Trade

The ratio of export prices to import prices, indicating the gain for a country that either receives more for its exports or pays less for its imports.

"Beggar Thy Neighbor" Tariff

A tariff imposed by a large country, coming at the expense of Foreign exporters.

Optimal Tariff

The tariff that leads to the maximum increase in welfare for the importing country.