Lessons In Economics Economic Efficiency

1
Duval County Public SchoolsJacksonville, Florida
Economics Destination JAXPORT
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Protectionism
Written by Mary Chowenhill, Robert E. Lee High
School Patrick Curran, Jean Ribault Senior High
School Jacksonville, Florida April, 2006
3
Preview Questions

• What is protectionism?
• What are the ways government can restrict
  imports?
• How does import restrictions impact prices?
• How does import restrictions impact supply?

4
Objectives

• To examine ways nations protect industries.
• To realize the effects of quotas and tariffs on
  price.
• To learn the effects of quotas and tariffs on
  supply.

5
Goal

• To be able to explain effects of quotas and
  tariffs on consumers.

6
Key Terms

• Protectionism
• Quota
• Tariff
• Imports
• Exports

7
What is protectionism?

• A nation who wants to start or preserve certain
  industries may practice protectionism.

8
What is protectionism?

• A nation who wants to start or preserve certain
  industries may practice protectionism.
• Protectionism can take several forms.

9
What is protectionism?

• A nation who wants to start or preserve certain
  industries may practice protectionism.
• Protectionism can take several forms.
• Quotas and tariffs are two of those forms.

10
What is protectionism?

• A nation who wants to start or preserve certain
  industries may practice protectionism.
• Protectionism can take several forms.
• Quotas and tariffs are two of those forms.

• A quota is a limit of a good that can be imported
  into a country.

11
What is protectionism?

• A nation who wants to start or preserve certain
  industries may practice protectionism.
• Protectionism can take several forms.
• Quotas and tariffs are two of those forms.

• A quota is a limit of a good that can be imported
  into a country.
• A tariff is a tax placed on an imported good. It
  may be used to protect an industry or to raise
  revenue for the government.

12
So what happens when a government uses
protectionism?

• To understand what happens, we need to look at a
  market before and after trade.
• D is the demand curve for MP3 players in the
  United States .

P
D
0
Q
13
So what happens when a government uses
protectionism?

• D is the demand curve for MP3 players in the
  United States .
• Sd is the domestic supply curve for MP3 players
  in the U.S. Market.

P
Sd
D
0
Q
14
So what happens when a government uses
protectionism?

• D is the demand curve for MP3 players in the
  United States .
• Sd is the domestic supply curve for MP3 players
  in the U.S. Market.
• 100 is the price, 3000 is the quantity.

P
Sd
100
D
0
Q
3000
15
So what happens when a government uses
protectionism?

• D is the demand curve for MP3 players in the
  United States .
• Sd is the domestic supply curve for MP3 players
  in the U.S. Market.
• 100 is the price, 3000 is the quantity.
• The green triangle is how much U.S. companies
  produce.

P
Sd
100
Domestic Production
D
0
Q
3000
16
So what happens when a government uses
protectionism?

• We all know that MP3 players are produced in
  other countries.

P
Sd
100
Domestic Production
D
0
Q
3000
17
So what happens when a government uses
protectionism?

• We all know that MP3 players are produced in
  other countries.
• What happens to the graph when the U.S. trades?

P
Sd
100
Domestic Production
D
0
Q
3000
18
So what happens when a government uses
protectionism?

• We all know that MP3 players are produced in
  other countries.
• What happens to the graph when the U.S. trades?
• You have a supply curve (Sw) for the trade.

P
Sd
100
Sw
Domestic Production
D
0
Q
3000
19
So what happens when a government uses
protectionism?

• What happens to the graph when the U.S. trades?
• You have a supply curve (Sw) for the trade.
• You also have a new quantity (5000).

P
Sd
100
Sw
Domestic Production
D
0
Q
3000
5000
20
So what happens when a government uses
protectionism?

• You have a supply curve (Sw) for the trade.
• You also have a new quantity (5000).
• You have a new price (60).

P
Sd
100
Sw
60
Domestic Production
D
0
Q
3000
5000
21
So what happens when a government uses
protectionism?

• What does this do to domestic production?

P
Sd
100
Sw
60
Domestic Production
D
0
Q
3000
5000
22
So what happens when a government uses
protectionism?

• What does this do to domestic production?
• It falls to 1000.

P
Sd
100
Sw
60
D
0
Q
3000
5000
1000
Domestic Production
23
So what happens when a government uses
protectionism?

• What does this do to domestic production?
• It falls to 1000.
• So where do the other 4000 come from in the
  market?

P
Sd
100
Sw
60
D
0
Q
3000
5000
1000
Domestic Production
24
So what happens when a government uses
protectionism?

• What does this do to domestic production?
• It falls to 1000.
• So where do the other 4000 come from in the
  market?
• Imports!

P
Sd
100
Sw
60
Imports
D
0
Q
3000
5000
1000
Domestic Production
25
So what happens when a government uses
protectionism?

• What does this do to domestic production?
• It falls to 1000.
• So where do the other 4000 come from in the
  market?
• Imports!
• This is a free trade market.

P
Sd
100
Sw
60
Imports
D
0
Q
3000
5000
1000
Domestic Production
26
So what happens when a government uses
protectionism?

• If government wants to protect the domestic MP3
  market, they will impose a tariff.

P
Sd
100
Sw
60
Imports
D
0
Q
3000
5000
1000
Domestic Production
27
So what happens when a government uses
protectionism?

• If government wants to protect the domestic MP3
  market, they will impose a tariff.
• Lets say the government places a 20 tariff on
  every imported MP3 player.

P
Sd
100
Sw
60
Imports
D
0
Q
3000
5000
1000
Domestic Production
28
So what happens when a government uses
protectionism?

• If government wants to protect the domestic MP3
  market, they will impose a tariff.
• Lets say the government places a 20 tariff on
  every imported MP3 player.
• What will that do to the price in this market?

P
Sd
100
Sw
60
Imports
D
0
Q
3000
5000
1000
Domestic Production
29
So what happens when a government uses
protectionism?

• What will that do to the price in this market?
• The new price will be 80.

P
Sd
100
Sw
80
60
Imports
D
0
Q
3000
5000
1000
Domestic Production
30
So what happens when a government uses
protectionism?

• What will that do to the price in this market?
• The new price will be 80.
• There will also be a new market quantity (4000).

P
Sd
100
Sw
80
60
Imports
D
0
Q
3000
5000
1000
Domestic Production
31
So what happens when a government uses
protectionism?

• What happened?

P
Sd
100
Sw
80
60
Imports
D
0
Q
3000
5000
1000
Domestic Production
32
So what happens when a government uses
protectionism?

• What happened?
• A new supply curve that includes the tariff (St).

P
Sd
St
100
Sw
80
60
Imports
D
0
Q
3000
5000
1000
Domestic Production
33
So what happens when a government uses
protectionism?

• What happened?
• A new supply curve that includes the tariff (St).
• What happens to the imports?

P
Sd
St
100
Sw
80
60
Imports
D
0
Q
3000
5000
1000
Domestic Production
34
So what happens when a government uses
protectionism?

• What happens to the imports?
• They are cut to 2000.

P
Sd
St
100
Sw
80
60
Imports
D
0
Q
3000
5000
1000
Domestic Production
35
So what happens when a government uses
protectionism?

• What happens to the imports?
• They are cut to 2000.
• What happens to domestic production?

P
Sd
St
100
Sw
80
60
Imports
D
0
Q
3000
5000
1000
Domestic Production
36
So what happens when a government uses
protectionism?

• What happens to the imports?
• They are cut to 2000.
• What happens to domestic production?
• It increases to 2000.

P
Sd
St
100
Sw
80
60
Imports
Domestic Production
D
0
Q
3000
5000
1000
37
So what happens when a government uses
protectionism?

• What happens to the imports?
• They are cut to 2000.
• What happens to domestic production?
• It increases to 2000.
• But dont the imports have a lower price?

P
Sd
St
100
Sw
80
60
Imports
Domestic Production
D
0
Q
3000
5000
1000
38
So what happens when a government uses
protectionism?

• But dont the imports have a lower price?
• No!

P
Sd
St
100
Sw
80
60
Imports
Domestic Production
D
0
Q
3000
5000
1000
39
So what happens when a government uses
protectionism?

• But dont the imports have a lower price?
• No!
• The imported MP3 players have a tariff.

P
Sd
St
100
Sw
80
Tariff
60
Imports
Domestic Production
D
0
Q
3000
5000
1000
40
So what happens when a government uses
protectionism?

• But dont the imports have a lower price?
• No!
• The imported MP3 players have a tariff.
• That will raise the price to 80.

P
Sd
St
100
Sw
80
Tariff
60
Imports
Domestic Production
D
0
Q
3000
5000
1000
41
Assessment

• Do the Protectionism Assessment.
• You have 10 minutes!

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Enrichment

• Explore two products and find out the effect of a
  tariff or free trade on them.
• Find out what goods are imported and exported
  through JAXPORT.