184PART THREESUPPLY AND DEMAND II: MARKETS AND WELFARE±Trade raises the economic well-being of a nation in the sense that the gains ofthe winners exceed the losses of the losers.THE GAINS AND LOSSES OF AN IMPORTING COUNTRYNow suppose that the domestic price before trade is above the world price. Onceagain, after free trade is allowed, the domestic price must equal the world price. AsFigure 9-4 shows, the domestic quantity supplied is less than the domestic quan-tity demanded. The difference between the domestic quantity demanded and thedomestic quantity supplied is bought from other countries, and Isoland becomes asteel importer.In this case, the horizontal line at the world price represents the supply of therest of the world. This supply curve is perfectly elastic because Isoland is a smalleconomy and, therefore, can buy as much steel as it wants at the world price.CBDAPriceof SteelPricebefore tradePriceafter trade0Quantityof SteelDomesticsupply
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