1 Welcome to EC 382: International Economics By: Dr. Jacqueline Khorassani Week Six

2 Week Six: Class One Tuesday, October 9 14:10-15:00 AC 202 Tuesday, October 9 14:10-15:00 AC 202

3 Exam 1 Tomorrow at 3:10 PM. Tomorrow at 3:10 PM. It will cover everything up to Page 141: The Effect of a Tariff For A Large Country It will cover everything up to Page 141: The Effect of a Tariff For A Large Country It has 3 parts It has 3 parts Part One: 20 Multiple Choice questions (3 points each) Part One: 20 Multiple Choice questions (3 points each) Part Two: 5 True/False (2 points each) Part Two: 5 True/False (2 points each) Part Three: 2 Essays/Problems (15 points each) Part Three: 2 Essays/Problems (15 points each)

4 This request is not specific enough Can you please go over everything that appeared in your study guide for week 5 please, thank you, Can you please go over everything that appeared in your study guide for week 5 please, thank you, Please Please –Study first –Then ask questions

5 And I got this mail You are a lecturer, you are paid to cover what's on our course, if your attitude is that we can cover the material ourselves from the book then what is your function here at all? You are a lecturer, you are paid to cover what's on our course, if your attitude is that we can cover the material ourselves from the book then what is your function here at all? Please read the course contract Please read the course contract –I want to use the class time eficiently –Lecture based on your demand

6 Another question I am confused about tariff escalation, can we go over it? I am confused about tariff escalation, can we go over it? Don’t worry about this one. Don’t worry about this one.

7 Request Could you put up the week 6 notes please, you said sometimes you forget and that someone should remind you. Thanks Jacques Could you put up the week 6 notes please, you said sometimes you forget and that someone should remind you. Thanks Jacques Study guide went up on Sunday Study guide went up on Sunday Class notes will go up on Friday Class notes will go up on Friday

8 Question When will the lecture notes for week 6 be posted and will the exam be based on 1-5 or 1-6? When will the lecture notes for week 6 be posted and will the exam be based on 1-5 or 1-6? I explained this in study guide for Week 6 I explained this in study guide for Week 6

9 Question Could we be asked to give some of the definitions from class/book on this test on Wednesday or is it enough to have an understanding of them? Could we be asked to give some of the definitions from class/book on this test on Wednesday or is it enough to have an understanding of them? You need to know everything we have covered. You need to know everything we have covered.

10 Question Could you please go over the concept of terms of trade, and in addition to that determining the range of the mutually beneficial terms of trade. I am finding it difficult to get my head around this. Thank you. Could you please go over the concept of terms of trade, and in addition to that determining the range of the mutually beneficial terms of trade. I am finding it difficult to get my head around this. Thank you.

11 Answer Opportunity cost of 1 computer in Ireland is 20 books, in Germany is 40 books Opportunity cost of 1 computer in Ireland is 20 books, in Germany is 40 books Ireland has comparative advantage in production of books Ireland has comparative advantage in production of books The range of mutually beneficial terms of trade: 40 books>1 computer>20 books The range of mutually beneficial terms of trade: 40 books>1 computer>20 books

12 Question can u explain Reciprocal demand please? can u explain Reciprocal demand please? Yes, Yes, –There are a range of terms of trade that benefit a nation 40 books>1 computer>20 books 40 books>1 computer>20 books If we really like foreign books  our demand for foreign books is very high (this is reciprocal demand)  we will give 1 computer for 21 books If we really like foreign books  our demand for foreign books is very high (this is reciprocal demand)  we will give 1 computer for 21 books If we don’t like foreign books that much  our demand for foreign books is very weak (this is reciprocal demand)  we will give 1 computer for 39 books If we don’t like foreign books that much  our demand for foreign books is very weak (this is reciprocal demand)  we will give 1 computer for 39 books

13 Question Can we also go over the effects of a tariff for a large country? Can we also go over the effects of a tariff for a large country? Yes, I will Yes, I will

14 And another one I got confused when the book started talking about the terms-of-trade effect. I'm also not exactly sure why a tariff imposed in a large country would cause the price of the good in the exporting country to fall. I got confused when the book started talking about the terms-of-trade effect. I'm also not exactly sure why a tariff imposed in a large country would cause the price of the good in the exporting country to fall. Thanks; I will explain in detail Thanks; I will explain in detail

15 2. Case of large importing nation Note: A large nation can influence the international price. Note: A large nation can influence the international price. –World Prices = €8. –Domestic government imposes a specific tariff on imported good in the amount of €2. –World supplier reduces the price to €7 –Domestic Price after tariff= 7+ 2 = €9 What are the economic effects of tariffs

16 What are the economic effects of tariffs in a large importing nation? S D Price Quantity a b c d Tariff = 2 -a+b+c+d: loss in CS = € a: added to PS= € b: efficiency loss= €2.5 - c+ f: government revenue = €40 -d: loss to consumers = €2.5 - a + c: redistributed effect = € b+d: dead-weight loss= €5 -f: loss in exporter’s revenue = €20= terms of trade effect 7 f The nation is better off if f>b+d

17 International Economics Week Six- Class 2 Week Six- Class 2 –Wednesday, October 10 –11:10-12:00 –Tyndall Exam 1 this afternoon Exam 1 this afternoon

18 A question why does a specific tariff mean more cheaper cars are produced domestically? why does a specific tariff mean more cheaper cars are produced domestically? Because it protects the domestic producers of cheap cars more than it protects the domestic producers of expensive cars. Because it protects the domestic producers of cheap cars more than it protects the domestic producers of expensive cars. Let’s do an example Let’s do an example

19 Say tariff = €1000/car Case 1: The price of the imported car is €10,000 Case 1: The price of the imported car is €10,000 –Price goes up to €11,000 Tariff is 10% of the value Tariff is 10% of the value Domestic producers of cars in this price range can increase their price up to 10 percent  they will produce more cars Domestic producers of cars in this price range can increase their price up to 10 percent  they will produce more cars

20 Say tariff = €1000/car Case 2: The price of imported car is €50,000 Case 2: The price of imported car is €50,000 –Price goes up to €51,000 Tariff is 2% of the value Tariff is 2% of the value Domestic producers of cars in this price range can increase their price only up to 2 percent  they will not produce a lot more cars Domestic producers of cars in this price range can increase their price only up to 2 percent  they will not produce a lot more cars

21 A Request Could you please make the lecture slides available with the study guide before each week? For those of us still waiting for the book to be delivered (often up to 14 business days from online sources) the study guide isn't worth much, considering the book is also unavailable in the library. On that subject, why isn't the book available in the library? Could you please make the lecture slides available with the study guide before each week? For those of us still waiting for the book to be delivered (often up to 14 business days from online sources) the study guide isn't worth much, considering the book is also unavailable in the library. On that subject, why isn't the book available in the library? I will check with the library to see what happened. I will check with the library to see what happened.

22 A comment This is a response to the comment made by one of the students about your lectures. A lot of people were not happy about that comment. We are not in college to be spoon-fed like kids, so that individual should get over it and realize that he/she is in 3rd year now. People should think before sending stupid comments. Jackie you are a great coach and thank you for keeping us on our toes - at least we are rest assured of a pass on both your subjects. This is a response to the comment made by one of the students about your lectures. A lot of people were not happy about that comment. We are not in college to be spoon-fed like kids, so that individual should get over it and realize that he/she is in 3rd year now. People should think before sending stupid comments. Jackie you are a great coach and thank you for keeping us on our toes - at least we are rest assured of a pass on both your subjects. Thanks for your kind remarks. Glad to hear that you approve of my way of teaching. Thanks for your kind remarks. Glad to hear that you approve of my way of teaching. We all should feel free to say what is on our minds. We all should feel free to say what is on our minds. We all say things that sound stupid to others at times. We all say things that sound stupid to others at times. I like to hear from all of you. I like to hear from all of you.

23 A request Hi Jackie. Can you please revise with us during the first class, instead of going through new stuff, just to relax us a little. We are very nervous and all that's in our heads right now is - exam, exam, exam! Hi Jackie. Can you please revise with us during the first class, instead of going through new stuff, just to relax us a little. We are very nervous and all that's in our heads right now is - exam, exam, exam! Please relax Please relax This is only 20% of your grade This is only 20% of your grade

24 Exam 1 Answer Key Question Form A (white) Form B (pink) 1BA 2DB 3BB 4BA 5BA 6BD 7DB

25 Exam 1 Answer Key Question Form A (white) Form B (pink) 8AC 9DA 10CA 11CC 12AA 13CD 14DD

26 Exam 1 Answer Key Question Form A (white) Form B (pink) 15CA 16BD 17CB 18AD 19BC 20DD 21TT

27 Exam 1 Answer Key Question Form A (white) Form B (pink) 22TT 23FF 24FF 25FF

28 Exam 1: Question Location 2. Joint products 3. Entrepot trade 4. Re-export trade 5. Seasonal items

29 Exam 1: Question 27 Push factors- push labor out of these countries Push factors- push labor out of these countries low standard of living in developing countries low standard of living in developing countries high rates of unemployment. high rates of unemployment. Poverty Poverty Pull factors- pull workers into developed nations Pull factors- pull workers into developed nations –Higher incomes –Higher standard of living