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Macroeconomics: Unit 6, Tariffs and Quotas 4 Views


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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

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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