mankiw ch9 - International Trade Mankiw, Ch. 9 What...

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International Trade Mankiw, Ch. 9 What determines whether a country imports or exports a product? Main influence is price. World Price = price prevailing in world markets = price at which we can sell or buy goods Domestic Price = price in our country without trade Ignoring transportation costs: If world price > domestic price before trade ÷ we will export the good If world price < dom. price before trade, ÷ we will import the good Trade allows us to buy goods more cheaply and sell them at a higher price than if we were restricted to the domestic market. To analyze the welfare effects of trade, begin by assuming we are dealing with a small country/economy = its actions have a very small effect on world markets Generally, the economy benefits from trade because we can import goods more cheaply than we can produce them and can sell our exports for more than people would pay in Canada However some groups will be hurt . Consider if we export a good such as wheat
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$ domestic price will rise to the world price since less of the product will be available for domestic consumption
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This note was uploaded on 10/02/2011 for the course ECON 1B03 taught by Professor Hannahholmes during the Spring '08 term at McMaster University.

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mankiw ch9 - International Trade Mankiw, Ch. 9 What...

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