Tariff.
Tax on goods produced abroad and sold domestically(tax on imported goods). A method used to restrict international trade.
Dead weight
... [Show More] loss.
The fall in total surplus that results from a market distortion, such as a tax (new equilibrium price that is settled for the transaction will be higher and therefore some burden of this will be passed on to the consumer)
How are tariff's and dead weight loss related? Explain.
A tariff causes a deadweight loss because a tariff is a type of tax. Like most taxes, it distorts incentives and pushes the allocation of scarce resources away from the optimum. (Oversupply and under demand)
Two primary categories of trade barriers
Tariffs and Non-Tariff
If an import tariff is imposed on coconuts that are imported into the U.S., how will this impact the price of coconuts for U.S. consumers?
Increase the price.
Why might a government be interested in imposing an import tariff on a good? What benefit would the government derive primarily?
The tariff will reduce the amount of importans, increase the amount of exports. The primary benefit is that it raises revenue for the government.
How would imposing an import tariff on cigars impact the domestic production of cigars?
Quantity increases for exporting at world price.
If an import tariff on coconuts was removed in the U.S., how would this impact the demand for coconuts by U.S. consumers?
The demand would increase.
What would happen to the overall domestic demand for a good if an import tariff were imposed on that good?
It would increase.
How does a tariff generally impact the following entities: consumers, producers, government? Compare the effects between the entities
Domestic sellers are better off, and domestic buyers are worse off. In addition, the government raises revenue.
Consumer surplus
The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
Who receives consumer surplus?
The buyer.
In relation to the demand curve and price, how is consumer surplus measured?
The area below the demand curve and above the price measures the consumer surplus in a market.
Producer surplus
The amount a seller is paid for a good minus the seller's cost of providing it
Who receives producer surplus?
The seller.
In relation to the demand curve and price, how is producer surplus measured?
The area below the price and above the supply curve measures the producer surplus in a market.
How is total surplus determined?
The total value to buyers of the goods, as measured by their willingness to pay, minus the total cost to sellers of providing those goods.
In what ways might government or policy makers make use of surplus measures?
To measure the economic well being of a society, in terms of efficiency and equality. (i.e. maximizing total surplus received (efficiency) and distributing economic prosperity (equality) uniformly among the members of society
Macroeconomics
The study of economy-wide phenomena, including inflation, unemployment, and economic growth.
Microeconomics
The study of how households and firms make decisions and how they interact in markets.
Why must income equal expenditure in an economy as a whole?
An economy's income is the same as its expenditure because every transaction has two parties: a buyer and a seller.
Gross domestic product (GDP)
The market value of all final goods and services produced within a country in a given period of time.
Four components of GDP
(1) Consumption (2) Investment (3) Govt purchases (4) Net exports
Why are transfer payments such as social security not counted in government expenditures?
Because they are not made in exchange for a currently produced good or service. Transfer payments alter household income, but they do not reflect the economy's production.
Real GDP
The production of goods and services valued at constant prices, ie. $1
Nominal GDP
The production of goods and services valued at current prices, i.e. $1 in 2013, $2 in 2014, etc...
Reason to measure GDP in real terms
Because (answer) GDP is not affected by changes in prices, changes in (answer) GDP reflect only changes in the amounts being produced. [Show Less]