Econ Part 2 of things to know
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29 Terms
Protectionism
Restricting trade through tariffs, quotas, or regulations.
Tariff
Tax on imports
Quota
Quantity restriction on imports
Free trade with lower world price
Consumption ↑, domestic production ↓, imports ↑.
Tariff effects
Price ↑, consumption ↓, domestic production ↑, imports ↓
Imports formula
Domestic Qd − domestic Qs
Tariff revenue
Tariff × imports after tariff
Two welfare costs of tariffs
Lost gains from trade + wasted resources
Why does extra domestic production from a tariff waste resources?
Higher-cost domestic firms replace lower-cost foreign firms.
Candlemakers’ Petition lesson
Protectionist logic becomes absurd when consistently applied
Purpose of production
Satisfy consumer wants, not create jobs.
Voluntary trade
Both sides expect to gain
Trade and jobs
Trade shifts jobs rather than simply destroying them overall
Make-work bias
Mistaking employment for economic progress.
True measure of economic progress
Valuable production/living standards
Public choice economics
Applying economics to political decision-making
Concentrated benefits
Large gains received by a small group
Dispersed costs
Small individual costs spread across many people.
Why do special interests lobby harder?
Each member has much more at stake
Rational ignorance
Staying uninformed when learning costs more than the expected personal benefit.
Four voter biases
Anti-market, anti-foreign, make-work, pessimistic.
Anti-market bias
Underestimating the benefits of markets.
Anti-foreign bias
Underestimating benefits of dealing with foreigners.
Pessimistic bias
Overestimating problems and underestimating progress.
Bootleggers and Baptists
Different groups support the same regulation for different reasons.
Baptist vs. bootlegger
Moral/public-interest reason vs. financial-interest reason.
Voting with your feet
Choosing among places/products/organizations rather than only using ballots.
Why can inefficient policies survive?
Concentrated winners care more than dispersed losers.