Government Intervention Price Controls and Import TariffsQuotas 1

Government Intervention Price Controls and Import Tariffs/Quotas 1

Review 1. Explain the Law of Demand 2. Explain the Law of Supply 3. Identify the 5 shifters of demand 4. Identify the 4 shifters of supply 5. Define Subsidy 6. Explain why price DOESN’T shift the curve 7. Define Shortage 8. Define Surplus 9. What happens to Pand. Q if demand shifts left and supply shifts right? 2

Government Involvement #1 -Price Controls: Floors and Ceilings #2 -Import Quotas and Tariffs #3 -Subsidies #4 -Excise Taxes 3

#1 -PRICE CONTROLS Who likes the idea of having a price ceiling on gas so prices will never go over $1 per gallon? 4

Price Ceiling Maximum legal price a seller can charge for a product. Goal: Make affordable by keeping price from reaching Eq. P Rent S $5 Does this 4 policy help consumers? Does it help 3 producers? Price 2 Shortage (Qd>Qs) 1 o Ceiling 10 20 30 40 D 50 60 70 80 Q 5

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Price Floor Minimum legal price a seller can sell a product. Goal: Keep price high by keeping price from falling to Eq. P Corn S $ Surplus (Qd<Qs) Price Floor 4 3 Does this policy help corn producers? 2 1 o D 10 20 30 40 50 60 70 80 Q 7

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Review 1. What are th. E 5 shifters of demand 2. What are the 6 shifters of supply 3. What is the difference between a change in supply and a change in quantity supplied? 4. What is unique about a double shift? 5. Draw the following in your notebook: 6. A market with a price floor 7. A market with a price ceiling 8. What happens if you put a price floor below equilibrium?

Graph it away now!

#2 Import Tariffs Check “made in” What happened to American Manufacturing? Where did the jobs go and why? We must answer three questions today: • Do we want these jobs back at all? • If so, how do we get them back? • What are the costs of that decision? 11

#2 Import Tariffs A Tariff is a tax on imported goods Purpose: • To protect American workers from a cheaper world price. • To prevent domestic unemployment 12

Discussion: Do you prefer lower prices or protecting American jobs? Identify the following: 1. Equilibrium price and quantity with closed borders 2. Amount Americans produce at Pw 3. Amount we demand at Pw 4. Amount we import at world price (PW) 5. What is the effect on American workers? 6. What is the effect on American consumers?

Identify the following: 1. Amount Americans produce at Pt 2. Amount we demand at Pt 3. Amount we import at world price (Pt) 4. What is the effect on American workers? 5. What is the effect on foreign workers? Tariffs help protect domestic companies by raising the price of foreign Products. This helps domestic companies compete.

International Trade and Quotas Identify the following: 1. Price and Quantity with closed borders 2. Amount america produces at world price (Pw) 3. Amount we demand at Pw 4. Amount we import at world price (PW) 5. Amount americans produce at Pt 6. Amount americans demand at Pt This graphs show the domestic 7. Amount we import at Pt supply and demand for grain. 8. How does this policy help American workers? The letters represent area. 9. Did this policy help/hurt foreign workers?