CHAPTER 9 - CHAPTER 9 APPLICATION OF CONSUMER AND PRODUCER...

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CHAPTER 9 APPLICATION OF CONSUMER AND PRODUCER SURPLUS: INTERNATIONAL TRADE In this chapter, we use the concepts of consumer and producer surplus learned in chapter 7 to examine how countries gain from trade and how these gains are affected by trade restrictions. Additionally, we examine how the aforementioned gains are distributed. A) The Determinants of Trade: In chapter 3, we learned that opportunity costs dictate trade patterns, that is, who should specialize in producing a particular good or service and export it and, who should, instead, import it. In particular, we now that: Whoever has the lowest opportunity cost (or relative price, since opportunity costs are always expressed in terms of another good) at producing a particular good or service should export it. Whoever does not have the lowest opportunity cost at producing a particular good or service should import it. B) The Winners and Losers from Trade : Trade always results in an overall gain in total surplus. However, the distribution of that surplus differs depending on whether the country is an exporter or an importer. In particular: 1. If the country is an exporter : Domestic producers gain from engaging in international trade. Domestic consumers are worse off when engaging in international trade.
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This note was uploaded on 12/16/2010 for the course ECON 102 taught by Professor Clague during the Fall '08 term at San Diego State.

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CHAPTER 9 - CHAPTER 9 APPLICATION OF CONSUMER AND PRODUCER...

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