1. Trade Protection
AP Macroeconomics
Brooms: 32% tariff

2. Gains from International Trade
Lower prices
Gains from International Trade

3. Gains from International Trade
Greater choice Lower prices
Gains from International Trade

4. Gains from International Trade
Differences in resources Greater choice Lower prices
Gains from International Trade

5. Gains from International Trade
Economies of scale Differences in resources Greater choice Lower prices
Gains from International Trade

6. Gains from International Trade
Increased competition Economies of scale Differences in resources Greater choice Lower prices
Gains from International Trade

7. Gains from International Trade
Source of foreign exchange Increased competition Economies of scale Differences in resources Greater choice Lower prices
Gains from International Trade

8. S(Domestic) D
S(World)
P W P e Price of wheat ($ per ton)
Q Qe Q2
Quantity of wheat (000s tons)

9. S(Domestic) D
S(World)
P W P e Price of wheat ($ per ton)
Q Qe Q2
Quantity of wheat (000s tons)

10. S(Domestic) D
S(World)
P W P e Price of wheat ($ per ton)
Q Qe Q2
Quantity of wheat (000s tons)

11. Arguments for Protectionism
Protect domestic employment
Arguments for Protectionism

12. Arguments for Protectionism
Protect economy from low-cost labor Protect domestic employment
Arguments for Protectionism

13. Arguments for Protectionism
Protect an infant (sunrise) industry Protect economy from low-cost labor Protect domestic employment
Arguments for Protectionism

14. Arguments for Protectionism
Avoid risk of over-specialization Protect an infant (sunrise) industry Protect economy from low-cost labor Protect domestic employment
Arguments for Protectionism

15. Arguments for Protectionism
Strategic reasons Avoid risk of over-specialization Protect an infant (sunrise) industry Protect economy from low-cost labor Protect domestic employment
Arguments for Protectionism

16. Arguments for Protectionism
Prevent dumping Strategic reasons Avoid risk of over-specialization Protect an infant (sunrise) industry Protect economy from low-cost labor Protect domestic employment
Arguments for Protectionism

17. Arguments for Protectionism
Protect product standards Prevent dumping Strategic reasons Avoid risk of over-specialization Protect an infant (sunrise) industry Protect economy from low-cost labor Protect domestic employment
Arguments for Protectionism

18. Arguments for Protectionism
Raise government revenue Protect product standards Prevent dumping Strategic reasons Avoid risk of over-specialization Protect an infant (sunrise) industry Protect economy from low-cost labor Protect domestic employment
Arguments for Protectionism

19. Arguments for Protectionism
Correct balance of payments deficit Raise government revenue Protect product standards Prevent dumping Strategic reasons Avoid risk of over-specialization Protect an infant (sunrise) industry Protect economy from low-cost labor Protect domestic employment
Arguments for Protectionism

20. Government Intervention in International Trade
Tariffs
Quotas
Regulations to limit trade
Government Intervention in International Trade

21. P W P e Price of wheat ($/ton)
S(Domestic) D
S(World)
P W P e Price of wheat ($/ton)
Q Qe Q2
Quantity of wheat (000s tons)
S(World) + tariff
Pw+t
Q Q4
Increase domestic Decrease domestic
production consumption

22. Consumer Surplus Before & After Tariff
Price
Consumer Surplus S
PW + T a b c d PW Q1 D
Quantity Q3 Q4 Q2
Change in consumer surplus =
- a - b - c - d

23. Producer Surplus Before & After Tariff
Price S
PW + T a PW Q1 D
Quantity Q3 Q4 Q2
Change in producer surplus =
+ a

24. Summarize to this Point …
Price
Consumer Surplus S
PW + T a b c d PW Q1 D
Quantity Q3 Q4 Q2
Change in consumer surplus =
- a - b - c - d
Loss in Total Surplus = ?????
Change in producer surplus =
+ a
= (b + c + d)

25. Net Change in Society Wealth with Tariff
Price
Consumer Surplus
T · (Q4 – Q3) S
Net change in welfare?
Net loss: b + d
PW + T
“Deadweight loss” a b c d PW Q1 D
Quantity Q3 Q4 Q2
Change in consumer surplus =
- a - b - c - d
Change in producer surplus =
+ a
+ c
Change in government revenue =

26. S(Domestic) D
S(World)
P W P e Price of wheat ($/ton)
Q Qe Q2
Quantity of wheat (000s tons)
S(World) + tariff
Pw+t
Q Q4

27. Illustrate and Explain…
Draw your own copy of the tariff diagram, with semi-conductors in Japan as the example.
Make a table with two columns: Winners and Losers.
List stakeholders who win or lose by the imposition of the tariff and give a brief explanation in each case of why.
Consider possible international implications.
Use the letters in the diagram to specifically identify the costs and benefits.