ECON 211 Chapter 9

closed economy

economy that is not open to global trade

open economy

economy that is open to global trade

domestic markets is a

smaller player in global market

what would make a buyer want to buy on global market?

lower price

what would make a seller want to sell on aglobal market?

higher price

world price (Pw)

equilibrium price on g.m. Pw>P, export

Domestic price (P)

equilibrium price in d.m. P>Pw, import

in an open economy with exports, world demand curve is 

perfectly elastic and above equilibrium price

in a closed economy, consumer surplus from exports is

AB

in a closed economy, producer surplus from exports is

C

in a closed economy, total surplus from exports is

ABC

in an open economy, consumer surplus from exports is

A

in an open economy, producer surplus from exports is

BCD

in an open economy, total surplus from exportrs is

ABCD

the change in consumer surplus from international trade is

-B

the change in producer surplus from international trade is

+(BD)

the change in total surplus from international trade is

+D

in an open economy with imports, world supply is 

perfectly elastic and below equilibrium price

in an open economy with imports, gains to ____ are greater than losses to _____

consumers, producers

in an open economy with exports, gains to ____ are greater than losses to _____

producers, consumers

in a closed economy, consumer surplus from imports is

A

in a closed economy, producer surplus from imports is

BC

in a closed economy, total surplus from imports is

ABC

in an open economy, consumer surplus from imports is

ABD

in an open economy, producer surplus from imports is

C

in an open economy, total surplus from imports is

ABCD

the change in consumer surplus with imports is

+(B+D)

the change in producer surplus with imports is

-B

the change in total surplus with imports is

+D

protectionism

policies that restrict imports through tariffs or quotas

tariff

tax on imports

consumer surplus without tariff on domestic market

ABCDEF

producer surplus without tariff on domestic market

G

consumer surplus with tariff on domestic market

AB

producer surplus with tariff on domestic market

CG

tariff revenue with tariff on domestic market

E

change in consumer surplus with tariff on domestic market

-(C+D+E+F)

change in producer surplus with tariff on domestic market

+C

change in tariff revenue with tariff on domestic market

+E

change in total surplus with tariff on domestic market

-(D+F)

tariff revenue=

Tariff*(QD2-QS2)

3 reasons for tariffs

jobs, national security, infant industry