180 PART THREE SUPPLY AND DEMAND II: MARKETS AND WELFARE Chapter 3 introduced the study of international trade by applying the princi-ple of comparative advantage. According to this principle, all countries can bene-fit from trading with one another because trade allows each country to specialize in doing what it does best. But the analysis in Chapter 3 was incomplete. It did not explain how the international marketplace achieves these gains from trade or how the gains are distributed among various economic actors. We now return to the study of international trade and take up these questions. Over the past several chapters, we have developed many tools for analyzing how markets work: supply, demand, equilibrium, consumer surplus, producer surplus, and so on. With these tools we can learn more about the effects of international trade on economic well-being. THE DETERMINANTS OF TRADE Consider the market for steel. The steel market is well suited to examining the
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