International Trade- Micro Topic 2.9

Hey econ students. This video covers Micro Topic 2.9 and shows trade, tariffs, and quotas using supply and demand. Be sure to be able to draw and calculate consumer surplus, producer surplus, and deadweight loss. Remember that the international trade is different than a price ceiling. The result is not a shortage. Instead, we are importing the different between the quantity demanded and the domestic quantity supplied. This causes consumer surplus to get bigger and producer surplus to get smaller.

Hey internet this is jacob clifford in the mid-1950s a creative entrepreneur started a business that changed the world no it wasn’t walt disney it was malcolm mclean who you’ve probably never heard of him but his invention influences almost everything around you so what did this guy mclean do well it has to do with shipping early on goods were loaded onto ships

In sacks barrels and wooden crates with scores of dock workers squeezing them on decks or in tight spaces below ships often spent more time at ports than sailing and not much change until 1956 that’s when american truck driver malcolm mclean stacked 58 metal boxes on a ship going from new jersey to houston his idea was simple instead of unloading individual

Products you unload the entire container and that makes things way more efficient that’s a pretty good idea and his process now called containerization lowered transportation costs and created global markets since it’s now easier and cheaper to ship things there’s no reason to produce something if another country can produce it cheaper container shipping moves

95 of all manufactured goods around the world you learned about the benefits of trade back in unit 1 we did comparative advantage but now we’re going to show these concepts using supply and demand so here’s the graph and for this example let’s use portable bluetooth speakers this shows the domestic demand and supply and the equilibrium price at 30 this is the

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Price if we produce these speakers in our own country but what if we can get speakers at a lower price from other countries let’s say 10 is the world price before i jump into it and show you what happens try to figure it out for yourself where is consumer surplus producer surplus and deadweight loss if we trade at that world price of 10. now if you think consumer

Surplus is here and producer surplus is here and debit loss is here you made a mistake a lot of students see the price here at 10 they go well there must be a shortage we’re only going to produce 10 units so we’re going to have some deadweight loss but there’s not going to be a shortage and there’s not going to be deadweight loss if the price is at 10 the producer

Surplus will be right here and that’s 25 remember the equation is one half base times height the base is 10 the height is 5. 5 times 10 is 50 cut in half 25 is produced a surplus so the producer surplus got smaller and it’s actually the same if this was a price ceiling but when there’s a ceiling we’re only producing 10 units and there’s a shortage but in this

Case we’re filling the shortage with imports at the price of 10 domestic producers can produce 10 units but people want 90 units so we’re going to import those 80 units so again the amount we’re going to produce in our own country is here the amount consumers are actually going to get is here so that means consumer surplus is going to be a whole lot bigger it’s

Going to be this whole area right here the actual calculation it’s the base which is 90 times the height which is 55 minus 10 so 45 times 90 cut in half gives you 2025. but the big idea here is to understand that consumer surplus got bigger this shows the benefits of trade and it also shows you who doesn’t like trade domestic producers because producer surplus

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Got smaller total surplus the consumer and the producer surplus was this before trade and now it’s this after trade all the people that are willing to pay 25 or 20 or 15 before trade didn’t get the speakers but now with trade they can get the speakers international trade is good and it mostly benefits consumers but what happens on the graph when the government

Gets involved when there’s quotas and tariffs assume we’re buying things at a world price at 10 and we’re importing 80 units the government comes and says listen we’re going to put a quota you can’t bring in more than 40 units into the country so we can’t import 80 units anymore so instead we only do 40 units the result is a price that’s right here at 20 in that

Case consumer surplus would get a little bit smaller and domestic producer surplus would get a little bit bigger and the same thing happens when there’s a tariff if the international price was back here at ten dollars and the government says listen we’re gonna put a ten dollar tariff on every single unit you import that’s gonna change the price to twenty again

Like a quota consumer surplus gets smaller and producer surplus gets bigger but do you see the box of tariff revenue generated by the government it’s this box right here that’s the tariff revenue generated by the government by putting on the tariff remember it was a 10 tariff and we’re importing 40 units 10 times 40 400 so to put it all together after the tariff

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We have consumer surplus producer surplus tariff revenue and these two triangles deadweight loss it’s lost consumer or producer surplus that doesn’t exist because of this policy so there it is back in unit 1 you learned about comparative advantage and why countries should specialize in trade and here in unit 2 you’re showing that concept on a graph showing that

Consumers benefit from international trade and now that’s happening more than ever because of malcolm mclean so what object am i going to put on the wall behind me to help you remember the idea of international trade consumer produced surplus and malcolm mclean well it’s this a shipping container many of the things around you right now were once in a shipping

Container and you got them at a lower price than if you had to produce them yourself not only did you have more consumer surplus but you had money to go buy other things to make your life better off dang it’s a sledgehammer lucky but don’t go anywhere we still have two things to do the first one if you like this video if i’m helping you learn and love economics

It’s time to subscribe like this video and leave a comment also be sure to watch my unit summary video where i talk about all the concepts in this unit over again to get them back in your brain for your test or your final exam or the ap exam and the second thing we got to do it’s time for a pop quiz at the end of these videos i give you a few multiple choice

Questions to verify you’re actually getting it so try those questions and look in the comments below for the answer key thanks for watching until next time you

Transcribed from video
International Trade- Micro Topic 2.9 By Jacob Clifford