CAS EC 101 Lecture Notes - Lecture 12: Import Quota, Opportunity Cost, Comparative Advantage
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World price: price of a good that prevails in the world market for that good. Domestic price: opportunity cost of the good on the domestic market. Domestic equilibrium price before trade is below the world price. Domestic price rises to equal the world price. Domestic quantity supplied is greater than domestic quantity demanded. Tariff : tax on goods produced abroad and sold domestically. Raises domestic prices above world price by the amount of the tariff. Price rises by the amount of the tariff. Moves the domestic market closer to its equilibrium without trade. Domestic sellers are better off (producer surplus is greater) Domestic buyers are worse off (consumer surplus is smaller) Transfer of technological advances around the world. Trade with other countries destroys domestic jobs . The industry is vital for national security . When there are legitimate concerns over national security. New industries need temporary trade restriction to help them get started .