Microeconomics: Theory and Applications with Calculus, 4e

9.6 Comparing Both Types of Policies: Trade

Traditionally, most of Australia’s imports come from overseas.

—Keppel Enderbery, former Australian cabinet minister (alleged)

We have examined examples of government policies that shift supply curves and policies that create a wedge between supply and demand. Governments use both types of policies to control international trade.

Allowing imports of foreign goods benefits the importing country. If a government reduces imports of a good, the domestic price rises; the profits increase for domestic firms that produce the good but domestic consumers are hurt. Our analysis will show that the loss to consumers exceeds the gain to producers.

The government of the (potentially) importing country can use one ...