Unformatted text preview: Econ 1 Example from International Trade (9) Notes Fall 2010 This was meant to go on slide 23. We changed the title to Imports: Winners and Losers. If an individual country has a closed economy (no international trade), it will have the following competitive equilibrium, consumer surplus and producer surplus. Price of Wine S CS p* PS D 0 q* Wine If the country opens itself to international trade and if the world price of wine, pW is less than p*, the country will import wine. The equilibrium is illustrated below. The difference between qB and qS is the quantity of imports. Price of Wine S CS p* PS W p D 0 qS q* qB Wine The international trade raises consumer surplus to the amount indicated below. The darker shaded region indicates the increase. Price of Wine S p* CS pW D 0 qS q* qB Wine The international trade lowers the producer surplus to the amount indicated in red below. The grey area represents the loss in producer surplus. Price of Wine S p* pW PS D 0 qS q* qB Wine The net gain to society, the gain in consumer surplus minus the loss in producer surplus is indicated below. Price of Wine S p* pW D 0 qS q* qB Wine ...
View Full Document
- Fall '08