Welcome to
EC 382: International
Economics
By: Dr. Jacqueline Khorassani
Week Six
1
Week Six: Class One

Tuesday, October 9
14:10-15:00
AC 202
2
Exam 1



Tomorrow at 3:10 PM.
It will cover everything up to Page 141: The
Effect of a Tariff For A Large Country
It has 3 parts
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
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Part One: 20 Multiple Choice questions (3 points each)
Part Two: 5 True/False (2 points each)
Part Three: 2 Essays/Problems (15 points each)
3
This request is not
specific enough


Can you please go over everything
that appeared in your study guide for
week 5 please, thank you,
Please
– Study first
– Then ask questions
4
And I got this mail


You are a lecturer, you are paid to
cover what's on our course, if your
attitude is that we can cover the
material ourselves from the book then
what is your function here at all?
Please read the course contract
– I want to use the class time eficiently
– Lecture based on your demand
5
Another question


I am confused about tariff escalation,
can we go over it?
Don’t worry about this one.
6
Request



Could you put up the week 6 notes
please, you said sometimes you forget
and that someone should remind you.
Thanks Jacques
Study guide went up on Sunday
Class notes will go up on Friday
7
Question


When will the lecture notes for week 6
be posted and will the exam be based
on 1-5 or 1-6?
I explained this in study guide for
Week 6
8
Question


Could we be asked to give some of the
definitions from class/book on this test
on Wednesday or is it enough to have
an understanding of them?
You need to know everything we have
covered.
9
Question

Could you please go over the concept
of terms of trade, and in addition to
that determining the range of the
mutually beneficial terms of trade. I
am finding it difficult to get my head
around this. Thank you.
10
Answer



Opportunity cost of 1 computer in
Ireland is 20 books, in Germany is 40
books
Ireland has comparative advantage in
production of books
The range of mutually beneficial terms
of trade: 40 books>1 computer>20
books
11
Question


can u explain Reciprocal demand please?
Yes,
– There are a range of terms of trade that benefit
a nation

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40 books>1 computer>20 books
If we really like foreign books our demand for
foreign books is very high (this is reciprocal demand)
 we will give 1 computer for 21 books
If we don’t like foreign books that much our demand
for foreign books is very weak (this is reciprocal
demand)  we will give 1 computer for 39 books
12
Question


Can we also go over the effects of a
tariff for a large country?
Yes, I will
13
And another one


I got confused when the book started
talking about the terms-of-trade
effect. I'm also not exactly sure why a
tariff imposed in a large country would
cause the price of the good in the
exporting country to fall.
Thanks; I will explain in detail
14
What are the economic effects
of tariffs
2. Case of large importing nation

Note: A large nation can influence the international
price.
– World Prices = €8.
– Domestic government imposes a specific tariff
on imported good in the amount of €2 .
– World supplier reduces the price to €7
– Domestic Price after tariff= 7+ 2 = €9
15
What are the economic
effects of tariffs in a
large importing nation?
Price
9
Tariff = 2
The nation
is better off
if f>b+d
a
c
b
8
S
d
f
7
10
15
D
35
-a+b+c+d: loss in
CS = €37.5
- a: added to PS=
€12.5
- b: efficiency loss=
€2.5
- c+ f: government
revenue = €40
-d: loss to
consumers = €2.5
- a + c: redistributed
effect = €32.5
- b+d: dead-weight
loss= €5
-f: loss in exporter’s
revenue = €20=
terms of trade effect
16
40
Quantity
International Economics

Week Six- Class 2
– Wednesday, October 10
– 11:10-12:00
– Tyndall

Exam 1 this afternoon
17
A question



why does a specific tariff mean more
cheaper cars are produced
domestically?
Because it protects the domestic
producers of cheap cars more than it
protects the domestic producers of
expensive cars.
Let’s do an example
18
Say tariff = €1000/car

Case 1: The price of the imported car
is €10,000
– Price goes up to €11,000
Tariff is 10% of the value
 Domestic producers of cars in this price range
can increase their price up to 10 percent 
they will produce more cars

19
Say tariff = €1000/car

Case 2: The price of imported car is
€50,000
– Price goes up to €51,000
Tariff is 2% of the value
 Domestic producers of cars in this price range
can increase their price only up to 2 percent
 they will not produce a lot more cars

20
A Request


Could you please make the lecture slides
available with the study guide before each
week? For those of us still waiting for the
book to be delivered (often up to 14
business days from online sources) the
study guide isn't worth much, considering
the book is also unavailable in the library.
On that subject, why isn't the book available
in the library?
I will check with the library to see what
happened.
21
A comment


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This is a response to the comment made by one of
the students about your lectures. A lot of people
were not happy about that comment. We are not in
college to be spoon-fed like kids, so that individual
should get over it and realize that he/she is in 3rd
year now. People should think before sending stupid
comments. Jackie you are a great coach and thank
you for keeping us on our toes - at least we are rest
assured of a pass on both your subjects.
Thanks for your kind remarks. Glad to hear that
you approve of my way of teaching.
We all should feel free to say what is on our minds.
We all say things that sound stupid to others at
times.
I like to hear from all of you.
22
A request
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

Hi Jackie. Can you please revise with us
during the first class, instead of going
through new stuff, just to relax us a little.
We are very nervous and all that's in our
heads right now is - exam, exam, exam!
Please relax
This is only 20% of your grade
23
Exam 1 Answer Key
Question
Form A (white) Form B (pink)
1
B
A
2
D
B
3
B
B
4
B
A
5
B
A
6
B
D
7
D
B
24
Exam 1 Answer Key
Question
Form A (white) Form B (pink)
8
A
C
9
D
A
10
C
A
11
C
C
12
A
A
13
C
D
14
D
D
25
Exam 1 Answer Key
Question
Form A (white) Form B (pink)
15
C
A
16
B
D
17
C
B
18
A
D
19
B
C
20
D
D
21
T
T
26
Exam 1 Answer Key
Question
Form A (white) Form B (pink)
22
T
T
23
F
F
24
F
F
25
F
F
27
Exam 1: Question 26
1.
2.
3.
4.
5.
Location
Joint products
Entrepot trade
Re-export trade
Seasonal items
28
Exam 1: Question 27


Push factors- push labor out of these countries
 low standard of living in developing countries
 high rates of unemployment.
 Poverty
Pull factors- pull workers into developed nations
– Higher incomes
– Higher standard of living
29