Application International trade Chapter g
Application: International Trade Chapter 9
International Trade What determines whether a country imports or exports a good? Who gains and who loses from free trade among countries What are the arguments that people used to advocate trade restrictions
International Trade • What determines whether a country imports or exports a good? • Who gains and who loses from free trade among countries? • What are the arguments that people used to advocate trade restrictions?
Equilibrium without trade assume A country is isolated from rest of the world and process steel o The market for steel consists of the buyers and sellers in the country. o no one in the country is allowed to import or export steel
Equilibrium without Trade Assume: • A country is isolated from rest of the world and process steel. • The market for steel consists of the buyers and sellers in the country. • No one in the country is allowed to import or export steel
Equilibrium without trade C of steel Domestic supply Consumer surplus equilibriun… Price Producer sur Domestic demand Equilibrium Quantity quantity of steel
Equilibrium without Trade Price of Steel Equilibrium Price 0 Quantity of Steel Equilibrium quantity Domestic supply Domestic demand Producer surplus Consumer surplus
Equilibrium without trade Results Domestic price adjusts to balance demand and supply o The sum of consumer and producer surplus measures the total benefits that buvers and sellers receive
Equilibrium without Trade Results: • Domestic price adjusts to balance demand and supply. • The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive
World price and Comparative advantage o If the country decides to engage in international trade, will it be an importer or exporter of steel? The effects of free trade can be shown by comparing the domestic price of a good without trade and the world price of the good. The world price refers to the prevailing price in the world markets a country will either be an exporter or an importer of the good
World Price and Comparative Advantage • If the country decides to engage in international trade, will it be an importer or exporter of steel? • The effects of free trade can be shown by comparing the domestic price of a good without trade and the world price of the good. The world price refers to the prevailing price in the world markets. • A country will either be an exporter or an importer of the good
World price and Comparative advantage o If a country has a comparative advantage then the domestic price will be below the world price, and the country will be an exporter of the good o If the country does not have a comparative advantage, then the domestic price will be higher than the world price, and the country will be an importer of the good
• If a country has a comparative advantage, then the domestic price will be below the world price, and the country will be an exporter of the good. • If the country does not have a comparative advantage, then the domestic price will be higher than the world price, and the country will be an importer of the good. World Price and Comparative Advantage
International Trade in an Exporting Country. Price of steel Domestic supply Price after World trade brice PI rice before……… trade Exports Domestic d eman 0 Domestic domestic Quanti quantit quantity of steel demanded supplied
Price of Steel 0 Quantity of Steel Domestic demand International Trade in an Exporting Country... Domestic supply World price Price after trade Exports Domestic quantity demanded Domestic quantity supplied Price before trade
How Free trade affects welfare in an Exporting Country. Price of steel Domestic supply Consumer surplus before trade A Price after World trade B brice PI rice before trade Producer surplus Domestic before trade d eman 0 Quanti of steel
Price of Steel 0 Quantity of Steel World price Domestic demand How Free Trade Affects Welfare in an Exporting Country... Domestic supply Price after trade Price before trade A Consumer surplus before trade B C Producer surplus before trade
How Free trade affects welfare in an Exporting Country. Price of steel Domestic Consumer surplus supply after trade A Exports Price after World trade B D brice PI ice before l………… trade Producer surplus after trade Domestic demand 0 Quanti of steel
Price of Steel 0 Quantity of Steel World price Domestic demand Domestic supply Price after trade Price before trade A Consumer surplus after trade C B Producer surplus after trade D Exports How Free Trade Affects Welfare in an Exporting Country