Lecture_chapter9

Lecture_chapter9 - Lecture 12 (Chapter 9) Introduction...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture 12 (Chapter 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
APPLICATION: INTERNATIONAL TRADE 2 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
Background image of page 2
APPLICATION: INTERNATIONAL TRADE 3 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. 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 3

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

View Full DocumentRight Arrow Icon
APPLICATION: INTERNATIONAL TRADE 4 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 4
APPLICATION: INTERNATIONAL TRADE 5 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 5

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

View Full DocumentRight Arrow Icon
A C T I V E  L E A R N I N G   A C T I V E  L E A R N I N G   1 1         Analysis of trade Analysis of trade 6 Without trade, P D = $3000, Q = 400 In world markets, P W = $1500 Under free trade, how many TVs will the country import or export? Identify CS, PS, and total surplus without trade, and with trade. P Q D S $1500 200 $3000 400 600 Plasma TVs
Background image of page 6
A C T I V E  L E A R N I N G   A C T I V E  L E A R N I N G   1 1         Answers Answers 7 Under free trade, domestic consumers demand 600 domestic producers supply 200 imports = 400 P Q D S $1500 200 $3000 600 Plasma TVs imports
Background image of page 7

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

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/02/2011 for the course ECON ECON200 taught by Professor Songhualin during the Fall '11 term at Maryland.

Page1 / 24

Lecture_chapter9 - Lecture 12 (Chapter 9) Introduction...

This preview shows document pages 1 - 8. Sign up to view the full document.

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