[International Trade] WEEK8(3)

Summary

Key Points

• The instructor introduces the problem of a country imposing a $10 tariff on imports when the world price is $40, raising the domestic price to $50. 2:20
• Using the supply equation Qs=10P‑200 and demand equation Qd=1000‑10P, the pre‑tariff equilibrium yields 200 units produced, 600 consumed, and 400 imported. 4:25
• After the tariff, domestic production rises to 300 units, consumption falls to 500 units, and imports drop to 200 units. 5:12
• The analysis concludes that while producers and the government benefit, the overall effect of the tariff is a welfare loss for the nation. 6:43
• Consumer surplus falls because buyers pay $10 more on each unit and lose the purchase of 100 units, resulting in a loss of $5,500. 25:08
• Producer surplus rises as existing producers receive $10 more on 200 units ($20,000) and gain an extra 100 units with a profit of $500, for a total gain of $2,500. 25:15
• The government collects tariff revenue of $10 per imported unit, amounting to $2,000. 25:31
• The loss of consumer surplus is split into two dead‑weight loss triangles (areas B and D), each worth $500, for a total dead‑weight loss of $1,000. 28:20
• Net national welfare change equals the sum of consumer loss (‑$5,500), producer gain (+$2,500) and government revenue (+$2,000), yielding a net loss of $1,000 for the country. 28:35