Principles of Economics- Mankiw (5th) 194

Principles of Economics- Mankiw (5th) 194 - 200 PA R T T H...

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200 PART THREE SUPPLY AND DEMAND II: MARKETS AND WELFARE been smuggling wheat abroad in exchange for steel from other countries. The only thing that the inventor had discovered was the gains from international trade. When the truth is revealed, the government shuts down the inventor’s opera- tion. The price of steel rises, and workers return to jobs in steel factories. Living standards in Isoland fall back to their former levels. The inventor is jailed and held up to public ridicule. After all, he was no inventor. He was just an economist. ± The effects of free trade can be determined by comparing the domestic price without trade to the world price. A low domestic price indicates that the country has a comparative advantage in producing the good and that the country will become an exporter. A high domestic price indicates that the rest of the world has a comparative advantage in producing the good and that the country will become an importer. ± When a country allows trade and becomes an exporter
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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