TWo Interdependent Markets Movie Tickets and videocassette Rentals ■ Questions What would be the feed back effect of a tax increase on one of two complementary goods? o What are the policy implications of using a partial equilibrium analysis compared to a general equilibrium in this scenario? Chapter 16 Slide 11
Chapter 16 Slide 11 ◼ Questions ⚫ What would be the feedback effect of a tax increase on one of two complementary goods? ⚫ What are the policy implications of using a partial equilibrium analysis compared to a general equilibrium in this scenario? Two Interdependent Markets: Movie Tickets and Videocassette Rentals
The Interdependence of International Markets a Brazil and the United states export soybeans and are, therefore, interdependent a Brazil limited exports in the late 1960s and early 1970S a Eventually the export controls were to be removed, and Brazilian exports were expected to increase Chapter 16 Slide 12
Chapter 16 Slide 12 The Interdependence of International Markets ◼ Brazil and the United States export soybeans and are, therefore, interdependent. ◼ Brazil limited exports in the late 1960’s and early 1970’s. ◼ Eventually the export controls were to be removed, and Brazilian exports were expected to increase
The Interdependence of International Markets a Partial Analysis Brazilian domestic soybean price will fall and domestic demand for soybean products would increase Chapter 16 Slide 13
Chapter 16 Slide 13 ◼ Partial Analysis ⚫ Brazilian domestic soybean price will fall and domestic demand for soybean products would increase. The Interdependence of International Markets
The Interdependence of International Markets a General Analysis In the U.s. the price of soybeans and output would increase, U.S. exports would increase and Brazilian exports would fall (even after regulations ended) Chapter 16 Slide 14
Chapter 16 Slide 14 ◼ General Analysis ⚫ In the U.S. the price of soybeans and output would increase; U.S. exports would increase and Brazilian exports would fall (even after regulations ended). The Interdependence of International Markets
Efficiency in Exchange a EXchange increases efficiency until no one can be made better off without making someone else worse off(Pareto efficiency) The Advantages of Trade Trade between two parties is mutually beneficial Chapter 16 Slide 15
Chapter 16 Slide 15 Efficiency in Exchange ◼ Exchange increases efficiency until no one can be made better off without making someone else worse off (Pareto efficiency). ◼ The Advantages of Trade ⚫ Trade between two parties is mutually beneficial