Chapter 9 Powerpoint

Chapter 9 Powerpoint - CHAPTER 9 Application International...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
C H A P T E R Application: International Trade 9
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
In this chapter, look for the answers to these questions: What determines how much of a good a country will import or export? Who benefits from trade? Who does trade harm? Do the gains outweigh the losses? If policymakers restrict imports, who benefits? Who is harmed? Do the gains from restricting imports outweigh the losses? What are some common arguments for restricting trade? Do they have merit? 1
Background image of page 2
2 Propositions about Which Most Economists Agree (and % who agree) Tariffs and import quotas usually reduce general economic welfare. (93%) The United States should not restrict employers from outsourcing work to foreign countries. (90%) The Increasing role of big merchandisers in global trade. (ex: Wall mart, Costco, Carrefour, and etc)
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
APPLICATION: INTERNATIONAL TRADE 3 Introduction Recall from Chapter 3: A country has a comparative advantage in a good if it produces the good at lower opportunity cost than other countries. Countries can gain from trade if each exports the goods in which it has a comparative advantage. Now we apply the tools of welfare economics to see where these gains come from and who gets them.
Background image of page 4
APPLICATION: INTERNATIONAL TRADE 4 The World Price and Comparative Advantage P W = the world price of a good, the price that prevails in world markets P D = domestic price without trade If P D < P W , country has comparative advantage in the good under free trade, country exports the good If P D > P W , country does not have comparative advantage under free trade, country imports the good
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
APPLICATION: INTERNATIONAL TRADE 5 The Small Economy Assumption A small economy is a ‘price taker’ in world markets: Its actions have no effect on P W . Not always true – especially for the U.S. – but simplifies the analysis without changing its lessons. What about other countries like Mexico? When a small economy engages in free trade, P W is the only relevant price: No seller would accept less than P W , since she could sell the good for P W in world markets. No buyer would pay more than P W , since he could buy the good for P W in world markets.
Background image of page 6
APPLICATION: INTERNATIONAL TRADE 6 A Country That Exports Soybeans Without trade, P D = $4 Q = 500 P W = $6 Under free trade, domestic consumers demand 300 domestic producers supply 750 exports = 450 P Q D S $6 $4 500 300 Soybeans exports 750
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
INTERNATIONAL TRADE 7 A Country That Exports Soybeans Without trade, CS = A + B PS = C Total surplus = A + B + C With trade, CS = A PS = B + C + D Total surplus = A + B + C + D P Q D S $6 $4 Soybeans exports A B D C gains from trade
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/16/2011 for the course ECON 202 taught by Professor Kim during the Fall '11 term at CSU Fullerton.

Page1 / 29

Chapter 9 Powerpoint - CHAPTER 9 Application International...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online