Graph of the equilibrium.
Demand function
parameters.
World price(use the
spinner to control).
Ad-valorem tariff level
(use the spinner to
control).
Supply function
Specific duty equivalent.
parameters.
Surplus components in
autarky (use checkbox to
see graph).
Surplus components with
free trade (use checkbox
to see graph).
Surplus components with
tariff (use checkbox to
see graph).
This workbook contains four worksheets, covering small
Equilibrium values with
country tariffs, export taxes, exports subsidies and
duty equivalent. tariff, free trade and in
quotas, all under perfect competition. All of the
autarky.
interfaces are essentially the same.
ponents in
heckbox to
onents with
e checkbox
onents with
eckbox to
s, covering small
subsidies and
on. All of the
Domestic Demand Domestic Supply World Price Domestic Price
1200
1000
800
Price
600
400
200
0
0 100 200 300 400 500
Quantity
Inverse Demand Parameters Inverse Supply Parameters
Intercept 1000.0 Intercept 100.0
Slope -2.0 Slope 2.0
World Price 200.0
Tariff (%) 0.0 Tariff ($ Equivalent) 0.0
Autarky Equilibrium Select checkboxes to show graphs
Price 550.0 Consumer Surplus 50625.0
Quantity Demanded 225.0 Producer Surplus 50625.0
Quantity Supplied 225.0 Government Revenue 0.0
Imports 0.0 Total Surplus 101250.0
Free Trade Equilibrium Select checkboxes to show graphs
Price 200.0 Consumer Surplus 160000.0
Quantity Demanded 400.0 Producer Surplus 2500.0
Quantity Supplied 50.0 Government Revenue 0.0
Imports 350.0 Total Surplus 162500.0
Tariff Equilibrium Select checkboxes to show graphs
Price 200.0 Consumer Surplus 160000.0
Quantity Demanded 400.0 Producer Surplus 2500.0
Quantity Supplied 50.0 Government Revenue 0.0
Imports 350.0 Total Surplus 162500.0
Exercises
1. Basic Effects of a Tariff
A tariff works by pushing the domestic price up.
Producers respond by producing more, consumers
respond by consuming less, and imports fall.
2. Welfare Effects (Distribution)
A tariff will (relative to free trade) redistribute surplus
from consumers to producers, and at the same time
generate revenue. But the losses exceed the gains...
3. Size of the Tariff and Deadweight Loss
As you increase the size of the tariff, note the speed
at which the total surplus declines, it should get
faster since the DWL increases geometrically.
4. Prohibitive Tariffs
Try increasing the tariff beyond 175%. What happens?
At this point the tariff stops all imports. Further
increases have no effect.
Domestic Demand Domestic Supply World Price Domestic Price
1200
1000
800
Price
600
400
200
0
0 100 200 300 400 500
Quantity
Inverse Demand Parameters Inverse Supply Parameters
Intercept 1000.0 Intercept 100.0
Slope -2.0 Slope 2.0
World Price 800.0
Export Tax (%) 46.0 Export Tax ($ Equiv) 250.0
Autarky Equilibrium Select checkboxes to show graphs
Price 550.0 Consumer Surplus 50625.0
Quantity Demanded 225.0 Producer Surplus 50625.0
Quantity Supplied 225.0 Government Revenue 0.0
Exports 0.0 Total Surplus 101250.0
Free Trade Equilibrium Select checkboxes to show graphs
Price 800.0 Consumer Surplus 10000.0
Quantity Demanded 100.0 Producer Surplus 122500.0
Quantity Supplied 350.0 Government Revenue 0.0
Exports 250.0 Total Surplus 132500.0
Export Tax Equilibrium Select checkboxes to show graphs
Price 550.0 Consumer Surplus 50625.0
Quantity Demanded 225.0 Producer Surplus 50625.0
Quantity Supplied 225.0 Government Revenue 0.0
Exports 0.0 Total Surplus 101250.0
Exercises
1. Basic Effects of an Export Tax
An export tax works by pushing the domestic price
down. Producers respond by producing less,
consumers respond by consuming more, and exports fall.
2. Welfare Effects (Distribution)
An export tax will (relative to free trade) redistribute
surplus from producers to consumers, and generate
revenue. But the losses exceed the gains...
3. Size of the Tax and Deadweight Loss
As you increase the size of the tax, note the speed
at which the total surplus declines, it should get
faster since the DWL increases geometrically.
4. Prohibitive Export Taxes
Try increasing the tax beyond 46%. What happens?
At this point the tax stops all exports. Further
increases have no effect. This is an export ban.
Domestic Demand Domestic Supply World Price Domestic Price
1200
1000
800
Price
600
400
200
0
0 100 200 300 400 500
Quantity
Inverse Demand Parameters Inverse Supply Parameters
Intercept 1000.0 Intercept 100.0
Slope -2.0 Slope 2.0
World Price 800.0
Export Subsidy (%) 0.0 Export Subsidy ($ Equiv) 0.0
Autarky Equilibrium Select checkboxes to show graphs
Price 550.0 Consumer Surplus 50625.0
Quantity Demanded 225.0 Producer Surplus 50625.0
Quantity Supplied 225.0 Government Revenue 0.0
Exports 0.0 Total Surplus 101250.0
Free Trade Equilibrium Select checkboxes to show graphs
Price 800.0 Consumer Surplus 10000.0
Quantity Demanded 100.0 Producer Surplus 122500.0
Quantity Supplied 350.0 Government Revenue 0.0
Exports 250.0 Total Surplus 132500.0
Export Subsidy Equilibrium Select checkboxes to show graphs
Price 800.0 Consumer Surplus 10000.0
Quantity Demanded 100.0 Producer Surplus 122500.0
Quantity Supplied 350.0 Government Expenditure 0.0
Exports 250.0 Total Surplus 132500.0
Exercises
1. Basic Effects of an Export Subsidy
An export subsidy works by pushing the domestic price
up. Producers respond by producing more, consumers
respond by consuming less, and exports rise.
2. Welfare Effects (Distribution)
An export subidy will (relative to free trade) redistribute
surplus from consumers to producers, and generate an
expenditure. But the losses exceed the gains...
3. Size of the Subsidy and Deadweight Loss
As you increase the size of the subsidy, note the speed
at which the total surplus declines, it should get
faster since the DWL increases geometrically.
4. Prohibitive Export Subsidies?
Try increasing the subsidy. Is there a limit to the magnitude?
With trade restricting instrument the worst case is autarky.
Trade expanding instruments could do more damage.
Domestic Demand Domestic Supply World Price Domestic Price
1200
1000
800
Price
600
400
200
0
0 100 200 300 400 500
Quantity
Inverse Demand Parameters Inverse Supply Parameters
Intercept 1000.0 Intercept 100.0
Slope -2.0 Slope 2.0
World Price 200.0
Quota (Volume) 300.0 Tariff Equivalent (%) 25.0
Autarky Equilibrium Select checkboxes to show graphs
Price 550.0 Consumer Surplus 50625.0
Quantity Demanded 225.0 Producer Surplus 50625.0
Quantity Supplied 225.0 Government Revenue 0.0
Imports 0.0 Total Surplus 101250.0
Free Trade Equilibrium Select checkboxes to show graphs
Price 200.0 Consumer Surplus 160000.0
Quantity Demanded 400.0 Producer Surplus 2500.0
Quantity Supplied 50.0 Government Revenue 0.0
Imports 350.0 Total Surplus 162500.0
Quota Equilibrium Select checkboxes to show graphs
Price 250.0 Consumer Surplus 140625.0
Quantity Demanded 375.0 Producer Surplus 5625.0
Quantity Supplied 75.0 Quota Rent 15000.0
Imports 300.0 Total Surplus 161250.0
Exercises
1. Basic Effects of a Quota
A quota works by restricting supply and thereby pushing
the domestic price up. Producers respond by producing
more, consumers respond by consuming less.
2. Welfare Effects (Distribution)
A quota will (relative to free trade) redistribute surplus
from consumers to producers, and at the same time
generate a rent. But the losses exceed the gains...
3. Size of the Quota and Deadweight Loss
As you decrease the size of the quota, note the speed
at which the total surplus declines, it should get
faster since the DWL increases geometrically.
4. Tariff/Quota Equivalence
Try imposing a binding quota. Now, check the differential
between the domestic a world prices. This is the tariff
equivalent. Try imposing this tariff in the tariff sheet.