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Topics include in International Economics trade theory, tariffs and other protectionist policies, trade agreements between nations, the World Trade Organization, balance of payments, exchange rates, and the European Monetary Union. Key points for this lecture are: Taxes, Subsidies, Tariffs, Effects of a Tariff, Effects of a Tariff on Prices and Quantities, Welfare Under Free Trade, Consumer Surplus, Producer Surplus, Government's Revenue from Tariff, Production Subsidy, Consumption Tax
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Price
of Steel
0 Quantity
of Steel
Domestic
supply
Domestic
demand
Imports
under free trade
Equilibrium
without trade
Price
before tariff
World
price
S
D
Welfare under free trade
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Price
of Steel
0 Quantity
of Steel
Domestic
supply
Domestic
demand
Price
after tariff Tariff
Imports
under free trade
Equilibrium
without trade
Price
before tariff
World
price Imports
with tariff
S
S
D
D
Consumer Surplus after Tariff
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Price
of Steel
0 Quantity
of Steel
Domestic
supply
Domestic
demand
Price
after tariff Tariff
Imports
under free trade
Price
before tariff
World
price
S
Imports
after tariff
S
D
D
Government’s Revenue from Tariff
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Effects of Tariff on Social Welfare
Price
of Steel
0 Quantity
of Steel
Domestic
supply
Domestic
demand
Price
with tariff Tariff
Imports
without tariff
Price
without tariff
World
price Imports
after tariff
S
S
D
D
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CONSUMPTION TAX
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Price
of Steel
0 Quantity
of Steel
Consumption Tax
Imports
under free trade
Imports
after tax
S
D
Purchase price
before tax
Domestic
demand
Purchase price
after tax
D
World
price
Domestic
supply
Equilibrium
without trade
Free Trade Consumption Tax
Consumers’ Surplus ABCDEF AB
Producers’ Surplus G G
Government CDE
Total Surplus ABCDE F G ABCDEG
S
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PRODUCTION SUBSIDY
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Price
of Steel
0 Quantity
of Steel
Domestic
supply
Domestic
demand
Production Subsidy
Imports
under free trade
World Price
Imports
after subsidy
S
S
D
D
Price sellers get
after subsidy
Price sellers get
before subsidy
price buyers pay, with
or without the subsidy
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