CHAPTER 9 APPLICATION: INTERNATIONAL TRADE 185 Now consider the gains and losses from trade. Once again, not everyone ben-efits. When trade forces the domestic price to fall, domestic consumers are better off (they can now buy steel at a lower price), and domestic producers are worse off (they now have to sell steel at a lower price). Changes in consumer and producer surplus measure the size of the gains and losses, as shown in Figure 9-5 and Ta-ble 9-2. Before trade, consumer surplus is area A, producer surplus is area B ± C, and total surplus is area A ± B ± C. After trade is allowed, consumer surplus is area A ± B ± D, producer surplus is area C, and total surplus is area A ± B ± C ± D. These welfare calculations show who wins and who loses from trade in an im-porting country. Buyers benefit because consumer surplus increases by the area B ± D. Sellers are worse off because producer surplus falls by the area B. The gains of buyers exceed the losses of sellers, and total surplus increases by the area D.
This is the end of the preview. Sign up
access the rest of the document.