Basic tar Iff Analysis Figure 8-2: Deriving Foreign's Export Supply Curve Price Price, P XS D2 D1 $1S2 Quantity, Q S1-D1 S2-D2 Quantity, Q Copyright C 2003 Pearson Education, Inc Slide 8-11
Copyright © 2003 Pearson Education, Inc. Slide 8-11 P2 P* A D* S* P1 XS Price, P Price, P D*2 S*2 Quantity, Q S*2 – D*2 Quantity, Q Figure 8-2: Deriving Foreign’s Export Supply Curve Basic Tariff Analysis D*1 S*1 S*1 – D*1
Basic tariff analysis Properties of the export supply curve It intersects the vertical axis at the closed economy price of the exporting country ° It is upward sloping It is flatter that the domestic supply curve in the exporting country Copyright C 2003 Pearson Education, Inc Slide 8-12
Copyright © 2003 Pearson Education, Inc. Slide 8-12 ▪ Properties of the export supply curve: • It intersects the vertical axis at the closed economy price of the exporting country. • It is upward sloping. • It is flatter that the domestic supply curve in the exporting country. Basic Tariff Analysis
Basic tariff analysis Price, P Figure 8-3: World Equilibrium XS MD Qw Quantity, Q Copyright C 2003 Pearson Education, Inc Slide 8-13
Copyright © 2003 Pearson Education, Inc. Slide 8-13 Figure 8-3: World Equilibrium XS Price, P Quantity, Q MD PW QW 1 Basic Tariff Analysis
Basic tariff analysis Useful definitions The terms of trade is the relative price of the exportable good expressed in units of the importable good A small country is a country that cannot affect its terms of trade no matter how much it trades with the rest of the world The analytical framework will be based on either of the following Two large countries trading with each other A small country trading with the rest of the world Copyright C 2003 Pearson Education, Inc Slide 8-14
Copyright © 2003 Pearson Education, Inc. Slide 8-14 ▪ Useful definitions: • The terms of trade is the relative price of the exportable good expressed in units of the importable good. • A small country is a country that cannot affect its terms of trade no matter how much it trades with the rest of the world. ▪ The analytical framework will be based on either of the following: • Two large countries trading with each other • A small country trading with the rest of the world Basic Tariff Analysis
Basic tariff analysis Effects of a Tariff Assume that two large countries trade with each other Suppose Home imposes a tax of $2 on every bushel of wheat imported Then shippers will be unwilling to move the wheat unless the price difference between the two markets is at least $2 Figure 8-4 illustrates the effects of a specific tariff of St per unit of wheat Copyright C 2003 Pearson Education, Inc Slide 8-15
Copyright © 2003 Pearson Education, Inc. Slide 8-15 ▪ Effects of a Tariff • Assume that two large countries trade with each other. • Suppose Home imposes a tax of $2 on every bushel of wheat imported. – Then shippers will be unwilling to move the wheat unless the price difference between the two markets is at least $2. • Figure 8-4 illustrates the effects of a specific tariff of $t per unit of wheat. Basic Tariff Analysis