P

1
Trade Policy
Tariff
P
P
S
XS
t
D
MD
Q
Q
Q
Home
World
Foreign
A Tariff raises the price in Home,while lowering
the price in Foreign Volume of trade declines.
2
Welfare Losses from a Tariff

• Welfare Losses

P
P
a
c
d
b
e
Q
Q
Consumer Lossabcd Producer Gaina Government
Revenuece Net lossbd-e e0 , for a small
country
3
Symmetries
I. Perfect Competition Import Quota Import
Tariff
S
D-Q
D
4
Export Subsidy Gains Losses
S
P
a
c
b
d
S
e
g
f
D
Q
Producer gainabc Consumer lossab Cost of
government subsidybcdefg Total
gain-(bdefg)
5
Tariff Quota in the Presence of Monopoly
P
MC
D
MR
Q
6
A Monopolist Protected by a Tariff
MC
D
MR
Q
7
A Monopolist Protected by a Quota
MC
2
2
Rent
1
1
D
8
Comparing a Tariff and a Quota with Same Imports
MC
D
9
Export Tax and Import Tariff

• Export Tax

• Import Tariff

S
D
D
S
M
X
YImport Good
XExport Good
10
Migration
Wage in Country S
Wage in Country D
A
B