Macroeconomics: Unit 6, Tariffs and Quotas

CoursesMacroeconomics
LanguageEnglish Language

Transcript

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clips for two bucks or will play it safe and

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by 1000 paper clip for 20 That's pretty reasonable for

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a chain mail vest right But what if we discover

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that we're overpaying for paperclips by about 100% Do we

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find out who's responsible and get out there You know

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the fiery torches and pitchforks Well probably not But well

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there several items we buy every day without thinking about

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why the price isn't quite right Paperclips included what were

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pretty riled up about being overcharged for paperclips And if

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it weren't for the fact that the prices were so

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high while we would manufacture paper clip chain mail armor

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for our entire town and you know storm the Bastille

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for now will allow our level heads to prevail and

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get to the bottom of this high priced paper clip

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Poppycock Okay so it's unlikely people would be up in

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arms or paying an extra dollar for 100 paper clips

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But same time thie us consumes about 11,000,000,000 paperclips Ah

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year That's 1,000,000,000 with a B which means a lot

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of extra money being spent on paper clips each year

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wasted So why doesn't the U S government step in

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and like regulate their do something about it Well in

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all actuality the reason for the high priced paperclips scandal

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is the government's own doing in the form of a

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tariff Well that means that the US has attacks on

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other countries primarily China's paperclip exports that come across our

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borders meaning we're importing They're cheaper paperclips So what gives

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Well the normal market for paperclips would be different In

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this case the equilibrium price for paperclips is a dollar

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for 100 paperclips or a penny a clip But the

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U S government got pissed off it China and wanted

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to make some of their goods more expensive to us

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consumers Maybe pay back time As a result the U

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S government imposed a tariff on every paper clip smart

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thing to do because they could punish China without really

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pissing off the American consumer who might not notice a

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price increase for a good so small well a tariff

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is more or less attacks that people don't see In

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other words when you buy a paper clip under normal

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conditions you pay a penny Then you pay a very

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obvious sales tax And the great state of California It's

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about 8% Well a tariff is more hidden than sales

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tax The U S government opposes it and it just

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automatically goes into the price of the good And then

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we have other taxes like sails on top of it

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So let's ignore the sales tax and look just at

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tariffs Here you start with the normal competitive market the

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incidents of a terror of shifts the supply curve like

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this up and to the left We'll quantity goes down

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Price goes up and notice the equilibrium Kyu won and

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P one right there The big triangle in the middle

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is what we called dead weight loss Nothing to do

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with Oprah there and the rectangular boxes What the government

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gains from the tariff right Well we have to pay

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double for paper clips but it's not all that bad

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The government collect revenues from the tariffs and domestic companies

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can be more competitive than in the U S At

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those higher price is right But yeah if you don't

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like tariffs you really aren't going to like quotas which

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put a cap on the total number of a certain

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good that can be imported well The reason Tariffs are

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generally preferable look quotas or less bad is because quotas

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are in general more trade Restrictive A quota sets up

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a top limit on how many goods can be imported

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of a specific type The goal from the government perspective

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is to give domestic producers a leg up So let's

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look at our supply and demand curves without quotas In

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this case the supply curve is horizontal and domestic and

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imported goods compete on equal ground Well if we only

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looked at the domestic supply we'd operate at P zero

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in Q zero which is a world of no trade

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And what a sad sad world That would be However

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due to the greatness of trade domestic purchases get to

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purchase up to Q one at a lower price of

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P one The quantity imported is kyu won minus Q

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two right there But now let's introduce a quota which

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limits how much can be imported The worldwide supply curve

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then has a forced stop Q three which is less

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than the desired quantity and offered at a higher price

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So what happens while we get a shortage Right Domestic

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producers sell more than they normally would sell at a

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higher price And while the consumer pays more for it

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and gets less had we opened the doors for foreign

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competition while the consumer then would benefit On top of

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all of this the U S government isn't even collecting

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revenues with tariffs So the question becomes Who makes out

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with quotas Will the answer US producers and foreign producers

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who are able to enter the U S market due

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to the higher prices at which they can sell their

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goods and services Well who else makes out with quotas

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Well Curtis but well you know that guy will make

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out with pretty much anything that moves He's just gross