CONSUMER PRODUCER SURPLUS

Pa min P for
producer a

to supply the food

P MC
A

mix IET
Q Q

CONSUMER PRODUCER

A Btc BENEFIT From Btc REVENUE

consuming THE Goos to PRODUCE
c cost
Btc p
aggyg.gg
ga gyqg
A BELOW D
ABOVE P

Assumptions
1 country H 1 HOMOGENEOUS GOOD
PERF COMPETTON IN GOODS FACTOR MARKET

NO TRANSPORTATION
COSTS
in Ex
BALANCED TRADE

RESOURCES ARE FULLY EMPLOYED

Da 0 P pan Sw
P
Pul
SH a
Sw PERFECTLY Row can SUPPLY
ELASTIC Any Quantity PH
All AT Pw
SMALL COUNTRY MY CHANGE DOES not
Hypothesis N Da or Sa CannGE Sw
 FREE TRADE PROTECTONISM

Specific Pw T

AD vasorth Pw Itt

pro Brave WIFEY'ibrium

r
non Pro BITUE some import
but lessthan
free trade

Quotas
Restrictions on TOTAL Quantity IMPORTED

nop tarerFBARRec.RS
Rules ON PRODUCTS cethRACTEMSTICS
TO BE IMPORTED
 FREE TRADE EM PROKBITUE TARIFF Autarky
FREETRASET
SH supply WITH
FREE TRADE

0A DOMESTIC supply
A
OB DOMESTIC DEMAND

If i
R i l l
as
n'EE
AtBtCtD
Ps E i r i i Da CS
Q PS E
o as A ar Qu B
P.TT AUTARKY NB TH F T
trucein TAMFF
Pw 1 T TH PH Hi after
THE inner
SUPPLY
II
f T Pa Tai
went P T
n.PT Rt TH
C S A
PS Btc

A At Btc xD B c og
C S
PT
I P S Bt E CE B
TT
C D
e
Aw
O Que OB PP Reta few
cows to Q
PP Pw T Tw
Prod PQ O it OA
 FREE TRADE USD NON PROHIBITIVE TARIFF
FREETRADEM
P a Sa
supply with
FREETRADE

0A Dore SUPPLY
B DOM DEMAND

pPw 1 I
en
II IE
F l I i pS F
t I i Da
GS 0
A A B B Q

P.TL
now THEPH
Surrey with a.PT
OA DOM SUPPLY
OB Door DEMAND
A'B import From
Row
C S A
PS Btf
inner
GS D unwary meeee revenue
harm
a B T

AC S A CA Btc DTE B C D E
N Put
FLEE I RS Bff f B
I GS D CQ D
E

I Q o B e OB PP TH Pm to W
I
Prod PQ OA 20A Pw

Gov P toriff revenue

 A NUMERCAL EXAMPLE
P 820 Q
Pn IDHI a 820 P
SH 20 3Q
SIG p 320
IN Pw
FIND DEMANDsupply IMPORT

i'if
in

l I i e
E
i t l l n PT
zo I l i Da
PT
o AA QuB B Q

Avaris Sa
SUPPLY in
Ashtray
P a 820 20 3Q
Q 820
30 ha 800
p 20 3
f
DENARD Zoo SUPPLY
int

TNEETRADET
SUPPLY WITH
FREE TRADE
p
m
D Q 820 P 820 320 500 OB

Q Leo OA
201 3 Q 320 20 30
y p
500 too Hoo AB
DEMAND Supply
import
N.r t.TT 80 C E 25

T 320 80 400
TH Put
re RT
SUPPLY went
820 P Le 20 COB
Q
DEMI 400 20 3Q
P 20 t 3 Q
supply OA
are 127

Demons Supply h2o 127 293 AB

T 300
P.TN
SUPPLY went PT

620 Pit
T Pw T 36 300

Q 200
620
IMPORT of
p
 CASEST
TECHNICAL NOTE ON FT A

P IS BIG ENOUGH
TO SUPPLY ALL
DEMAND from a
PT Bont
IN HIP

p is NOT
BIG ENOUGH
FTA
en's a
fT ONLY
IN P

p is not
BIG ENOUGH

TECHNICAL NOTE on co

PT Bott
Hep
151
In

C u
f T ONLY
N P

Ecumich NOTE ON E o.SI

E O S Ff
 TECHNICAL NOTE ON F TA not in the exam

with PT P n IPI with PI

P n
SH

S xp

it
Pw w
l i Da Dp
O C 0
1
Qu D Q Q
Qp

PH Price in Pp Price in
Autarky
Arranky
price in AFTER TH PRICE IN P AFTER
TH THE P T P THE RT app

SLOPE SLOPE
H PRODUCES AT
SH
HOME

H IMPORTS From P CD 0 Sb PE 0
B p
once PRODUCERS B CFLAT
in P Product Max amount of
P
Priors a that
is wi cu c to
SELL to a
AtPRe p Tp

J PRODUCERS Produce because P Peta

Boat in A p

SLOPE SLOPE
Sp SH
SLOPE OF THE Assumption
curve SatP
Horizonte sum
curves
OF THE two

numerical EXAMPLE y
EEE
7 a L EE o
Y THAN S Sp
 It imports 0 Fut
w
from Rew SIPE

FOR THE EXAM

remember that port 8 of g't

is flotter than both Sp Sy

Remember
Draw Sitara

FIND PETA
DH n s'Ita
FORGET SHEM AND
USE ONLY Pena
FTA Pat BOTH IN HIP P is BIGENOUGH To supply H
Pn with PT
P n ALwith PT
SH

i
fII I i Da ii ti Dp
C Qa D D a 0E
Q
l P FromP EXP to it
Arnos imptromRow
T
EQuiuB
BEFORE FTA It was Tia AND P HAS Tp
FTA HAS ACCESS to P's
with Production
Qp CD
CD EQp

HD
OC DOM SUPPLY
CD import from P
D CS A Btc yw At Btc A B
D PS A TRADE Pw with
TRADE
CREATION Factors
PRODUCER
loss A

Pro Duchow This PART OF

B Production is
EFFECT
ProbucED
more Ereraently

C CONSUMPTION P cons
EFFECT B c P
consumers still DEMAND OQp AND PAY Tp

EQ to H
PRODUCERS Produce 0Qp BUT EXP

P will IMPORT Ear Pw

D Mmff
EQp From Row
three revenues

INDUCED CHANGE
INDIRECT TRADE in TRADE fee
DEFLECNON
I
cannot BE EUMWATED
WITH Rule of Origin
ZD FTA PT BOTH IN HIP P IS NOT BIG ENOUGH to SUPPLY Are DemswD from H

Pa PT
P n with PT Rd with
SH

i
I CC I
Qµ D D Q O QpE Q
me From P eXP to H
mrs amor row
M
Equilibrium
0k DaVery Elastic very FEAT
P is smaller THAN H

Ifm.rs EIIiEIIII
I
At Tp
I I go.IE is covered
pea Tp

CD OE
CD 0 Qp

HD
0C Dore SUPPLY
cows
CD import from P Ete

Ics At B C Aw t TRADE Affufner

A WEAPON paan
I PS pus
EFF CASE ID
PRODUCERS PRODUCE to SsnSFY E Ips
OE H'S DEMAND
Qp t QpE
extra
production

To satisfy P imports 0Qp

P'S DEMARD from Row
MMFF MAX INDIRECT
IGS D REVENUE TRADE
Detector

P switches its entire production

went CHEAPER imports from Row
THEN sows them intensely at Tp

consumers PAT Tp
in p cows OQp
WE HAVE onge
Price Discrimination
consumers Pay pFta
in a Con OD
FTA PT ONLY in P P is BIGENOUGH to SUPPLY H

pn tf with N PT P a with RT
Sit

Pw i l
l I i 1 DH I I Dp
o c A B D D 0 E T
Q Qp Q
mr From P Exp to it
AND imperon Row

M
EQuiUB
BEFORE FTA at HAI Ta epa AND P Has Tp app
He HAS Access to P's Production price Ppa
want ETA

CD E Qp

cD 0 Qp

IHI
OC DOM SUPPLY
CD import from P
A c Bt CTD
S CS Dw ATBtctD A c E
A ygw.mg
IP S
C E aw I'IEoEEFa I
I Gs TRADE TRADE THE Efficient
Row to THE
DIVERSION CESS Efficient
importsbefore tori arennow
ein AB Pem Pw
Sw O II F TRADE TRADE
conman Diversion
trade diversion is part of theCTE
loss in tariff
22 why
only E and not Etc revenues is compensated
with CS Cc so the n
welfare effect of trade
diversion is only E
Producers Produce 0 p But e xp TO H EQp

P's Errors P imports EQp From Row

To satisfy

IG THEE
F S
revenues

INDIRECT TRADE
DEFLECTION
141 FTA PT ONLY IN P P IS NOT BIG ENOUGH to supply H

pn CHIwith NET P r pI with PT

SH

O C C A BD D o Qe E Q
Q
rep From P Exp to it
Mr from Row

EQuuBmumm
1
TH epa AND P HAS Tp Ipp
BEFORE FTA He Has

went FTA H HAS ACCESS to but not enough

P's production
max Qp at Tp Perry Tp
C D Qp
CD OE

at
OC Dom suppsy
CD IMP nom p
At Btc D A C E
des yw At Btc D
A
IPS Aw
I GS e E
TRADE TRADE
crennon DIVERSION
NEGATIVE EFFECT
OF TRADEDiversion

Dw O IFF TC TD
 NB toB I ID
Prem
saw
EE FEE

PRODUCERS PRODUCE OE EXP IT ALL To H

TO SATISH P'S DEMAND P imports 0Qp
From Row

SGS F tariff MAX indirect

REVENUES TRADE DERECTRON

APS _G

Tp w P
PUCE DI Scremingnon
Peta in A
 A TECHNICAL NOTE ON C U not in exam

HI a Ff
SH

u.i
P d Su Pu Su
b Da Dp

X H PRODUCES AT HOME SLOPE SLOPE

L Six

B H IMPORTS P'S EXCESS

SUPPLY Hp

B c P cannot IMPORT
why only the anymore from Row AT TP
excess supply
But must import AT CET

s
I
SLOPE OF SH SLOPE of Sw
a
Excess SUPPLY SLOPE of Sp
of P

PE 0 FLAT
HOME IMPORTS From Shf
y row At CET
 no need for CET guarantees
NO INDIRECT autarky in the
TRADE DEFEE ow Row integrated area

OPPORTIONMENT OF
An AGREEMENT ENSURES THE
custom REVENUES TO EACH country

FOR THE EXAM

PART P OF J't is OBLIQUE AND

ITS SCOPE IS S Mp

WE ONLY STUDY CASES in which D n S't

AT its SECOND car K BETWEEN P Y

b HIP
might be thot price
w
it
but this would not
is e CET
so we always
be equilibrium
in
CET
study cases of price
5 CU Pi in BOTH PLH
with PT P
p with PT
SH

if i l l I i S
Pur Su Pw
It
c Q D Q Q
Exe to H
imperomp

Equilibrium
three P wice ONLY SUPPLY TO
CET
AVERAGNG H its Excess supply MP

cannot import from

Dow
bc P
anymore but only at CET

Mp so it CET 7 Tp

cos FE

7
a cons BEFORE Cu c Domsupply

F EF
t.pe is a
gs If Ja co
Phobos
o
cons
nhI on
EFFECT Effect
I
cows BEFORE Cu Priors BEFORE cu
Qp CU
of cons AFTER

OE Production AFTER cu
j EF
Of
por Surrey Ext NH

Ics D
A w E
S PS Dte
CU PI ONLY IN P

KI with N PT Pn Fd with P T
p n
SH

i Sw
t
p Pw Sw
l I i Da i bp
O C A B D O E
G Fa Q
a
emperorP Exp to it

EQueuBMumm
P to H
CET ONLY Mp ExP From
CD FE

IN OA on supply
cows Before e u
OB Row
AB amp from

OC Dom Supply
D cows pizz cu

ed IMP from P

Ics At Btc D AtB e A

g ps A
C E Aw
I Gs NEGAME
TARREE REVENUES TRADE WELFARE
BEFORE cu chertnow EFFECTOF
TRADE
Diversion

Dw O LEF IC ID
 cows BEFORE CU Production BEFORE CU
O Qp

OF cows AFTER CU
AFTER CU
OE Prob
i w
FE
OF
ore Surry Exp to A

F
Ics F Iw FtG
s PS Ft G few G
 A TECHNICAL NOTE ON Eos not in exam

IN ALL OTHER CASES TOTAL COST

WE ASSUMED NO FIXED dCq c
cost of production q
d 7 when q 9

BOTH MC AND AC START FROM THE ore GIN

the
on
supply curve IS MC
B C AC MUST BE
D
µ
T new
with F 0

II
cose
in which

Tei AC
EYE
Mc 29 Ac
9

F we implicitly relax perfect

I tasse T competition assumption
C is constant

led Gca Ftc o

F
fac
1
Acn
Mc Act when 97
and AC converges to
D MC asyntothically

y Mc will never be above Ac

qq.fm a
AREvacant to produce THE AC
will
m a.n

coincide with

FOR THE EXAM

downward sloping
SUPPLY WWE Ac
Other two important notes
p n
Pn 117
Tp P

ne
II 1
Acp
l t
l Da Sw l Dp
Pw 1 Sw
l l
g A
O AA o 0 Q

Da Dp
ACH always above Acp
WTH TH et ft THE Quantity
ONLY P T can
NBI Ensure rsonSUPPLY DEMANDED 0A would IMPLY
in BOTHcountries A THAT Ac is not covered

ALL IMPORTED Coni

From Row

NBI price AnonE IS NOT p is more Efficient

a PERFECT SIGNAL AS BEFORE
For triE Efficiency face okays Aca
of a country
IButI
TH e Tp
BECAUSEND
Dp
iT
MORE EOS

ON
with EOS you NEED to HAVE INFO
AC cervE Technology to ASSESS
Efficiency P is not enough
171 EOS
P n Tht with P T por with P T

x
D Dp
Pa

at
1
A B e O EE e

line from p Exe to a

Equilibrium
assume P T Bott in H P CET is
a DP Tp Ti not three
P is more Efficient THAN it But D AventanG
WITH CO H int Fron P
it lower
BETTE BETTIEintima Engine Egs
possible
EVERY

OB E F

oa
EI BEEIE E minnow
B cows after cu
aw
I
Priors cons
ATB EFF EFF
I CS IP
Cia
SPEAAMEE in THE
PRODUCERS WE assume THEYDifferent GOOD
Prooucrow OF A on 7 soooo
in its noses e axe
IORI
raw MODEL's
assumption
if you want to
move inteir
producers From a cancaprine to P
Production LABOR
E of common MKT
L founoamerrar FREEDOMS
Cu
C Lich naturally now a
 OE cows BEFORE CU
COST RED ON
now BEFORE Cu
pros cons
t EFFECT
oe cons AFTER Cu et EFF

Dcs CTD
Pastors

cu T employment
OF Production near

IS BIGGER THAN IN STANDARD CASES

Iw 70
WITH out EOS

because P cows Gain in H AND

CET e Tp cows prob Cain in P

ISSUESFORIMPLEMENTATONI
not Produce BEFORE CU
HCCEAST Efficient
But imporana From
Row
to CESS
TRADE Diversion to THE
with CET Efficient P wit RESPECT TO MORE
WE HAVE Efficient Row

BEFORE CU
not producing
PCMORE Efficient
consumers in it ENJOY
WE OBSERVE Production
REVERSAL From H to P TRADE cren iron but consumers
stones prosuana in P wccc suffer From
TRADE SUPPRESSION
C cerate import From Row
REPLACED By cess Efficient
Internse Surrey
NEITHER H or P pursuance BEFORE CU

we coard OBSERVE LARGER country capturing

PENERSE SPecennzppon Aec rent DESPITE BEING
LESS Efficient

how to identify
509 AL more efficient LOBBIES 7
PLANNER
contre