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Macroeconomics: Unit 6, Tariffs and Quotas 4 Views
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Transcript
- 00:01
no macro economics Allah shmoop tariffs and quotas If you
- 00:08
Google uses for paperclips well Pinterest will pop up with
- 00:12
100 different D I Y projects toe unleash your inner
- 00:16
lock picking Spy slash engineer here our favorite homemade chain
- 00:22
mail It's good stuff all right weakened by 100 paper
Full Transcript
- 00:25
clips for two bucks or will play it safe and
- 00:28
by 1000 paper clip for 20 That's pretty reasonable for
- 00:31
a chain mail vest right But what if we discover
- 00:34
that we're overpaying for paperclips by about 100% Do we
- 00:38
find out who's responsible and get out there You know
- 00:41
the fiery torches and pitchforks Well probably not But well
- 00:44
there several items we buy every day without thinking about
- 00:47
why the price isn't quite right Paperclips included what were
- 00:52
pretty riled up about being overcharged for paperclips And if
- 00:55
it weren't for the fact that the prices were so
- 00:57
high while we would manufacture paper clip chain mail armor
- 01:00
for our entire town and you know storm the Bastille
- 01:04
for now will allow our level heads to prevail and
- 01:06
get to the bottom of this high priced paper clip
- 01:09
Poppycock Okay so it's unlikely people would be up in
- 01:13
arms or paying an extra dollar for 100 paper clips
- 01:16
But same time thie us consumes about 11,000,000,000 paperclips Ah
- 01:20
year That's 1,000,000,000 with a B which means a lot
- 01:23
of extra money being spent on paper clips each year
- 01:26
wasted So why doesn't the U S government step in
- 01:29
and like regulate their do something about it Well in
- 01:32
all actuality the reason for the high priced paperclips scandal
- 01:35
is the government's own doing in the form of a
- 01:38
tariff Well that means that the US has attacks on
- 01:41
other countries primarily China's paperclip exports that come across our
- 01:47
borders meaning we're importing They're cheaper paperclips So what gives
- 01:53
Well the normal market for paperclips would be different In
- 01:56
this case the equilibrium price for paperclips is a dollar
- 01:59
for 100 paperclips or a penny a clip But the
- 02:02
U S government got pissed off it China and wanted
- 02:05
to make some of their goods more expensive to us
- 02:08
consumers Maybe pay back time As a result the U
- 02:11
S government imposed a tariff on every paper clip smart
- 02:15
thing to do because they could punish China without really
- 02:18
pissing off the American consumer who might not notice a
- 02:21
price increase for a good so small well a tariff
- 02:24
is more or less attacks that people don't see In
- 02:27
other words when you buy a paper clip under normal
- 02:30
conditions you pay a penny Then you pay a very
- 02:32
obvious sales tax And the great state of California It's
- 02:35
about 8% Well a tariff is more hidden than sales
- 02:39
tax The U S government opposes it and it just
- 02:43
automatically goes into the price of the good And then
- 02:46
we have other taxes like sails on top of it
- 02:48
So let's ignore the sales tax and look just at
- 02:51
tariffs Here you start with the normal competitive market the
- 02:54
incidents of a terror of shifts the supply curve like
- 02:57
this up and to the left We'll quantity goes down
- 03:01
Price goes up and notice the equilibrium Kyu won and
- 03:04
P one right there The big triangle in the middle
- 03:06
is what we called dead weight loss Nothing to do
- 03:10
with Oprah there and the rectangular boxes What the government
- 03:13
gains from the tariff right Well we have to pay
- 03:17
double for paper clips but it's not all that bad
- 03:19
The government collect revenues from the tariffs and domestic companies
- 03:23
can be more competitive than in the U S At
- 03:26
those higher price is right But yeah if you don't
- 03:28
like tariffs you really aren't going to like quotas which
- 03:31
put a cap on the total number of a certain
- 03:33
good that can be imported well The reason Tariffs are
- 03:36
generally preferable look quotas or less bad is because quotas
- 03:40
are in general more trade Restrictive A quota sets up
- 03:44
a top limit on how many goods can be imported
- 03:47
of a specific type The goal from the government perspective
- 03:49
is to give domestic producers a leg up So let's
- 03:53
look at our supply and demand curves without quotas In
- 03:56
this case the supply curve is horizontal and domestic and
- 03:59
imported goods compete on equal ground Well if we only
- 04:03
looked at the domestic supply we'd operate at P zero
- 04:06
in Q zero which is a world of no trade
- 04:09
And what a sad sad world That would be However
- 04:12
due to the greatness of trade domestic purchases get to
- 04:16
purchase up to Q one at a lower price of
- 04:19
P one The quantity imported is kyu won minus Q
- 04:24
two right there But now let's introduce a quota which
- 04:28
limits how much can be imported The worldwide supply curve
- 04:32
then has a forced stop Q three which is less
- 04:37
than the desired quantity and offered at a higher price
- 04:39
So what happens while we get a shortage Right Domestic
- 04:43
producers sell more than they normally would sell at a
- 04:46
higher price And while the consumer pays more for it
- 04:50
and gets less had we opened the doors for foreign
- 04:53
competition while the consumer then would benefit On top of
- 04:56
all of this the U S government isn't even collecting
- 04:59
revenues with tariffs So the question becomes Who makes out
- 05:03
with quotas Will the answer US producers and foreign producers
- 05:08
who are able to enter the U S market due
- 05:10
to the higher prices at which they can sell their
- 05:13
goods and services Well who else makes out with quotas
- 05:16
Well Curtis but well you know that guy will make
- 05:19
out with pretty much anything that moves He's just gross
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