ch33b - and supplied of good Y at P = P w . Maria Gallego...

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Chapter 33 – The gains from trade Outline The gains from trade Law of one price o Exports o Imports Excercises The gains from trade Law of one price : Goods that are easy to transport will sell at the same price world-wide because… …if a good is cheaper in A than B then… …buyers shift to A and sellers shift to B …thereby causing price to rise in A and fall in B. Canada will export …good X if the world price of X (P w ) exceeds the pre-trade domestic price of X (P BT ). ( BT=before trade ) …the difference between domestic quantity supplied and demanded of good X at P = P w . Trade in export markets increases producer surplus by more than it lowers consumer surplus. Canada will import …good Y if the world price of Y (P w ) is less than the pre-trade domestic price of Y (P BT ). …the difference between domestic quantity demanded
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Unformatted text preview: and supplied of good Y at P = P w . Maria Gallego EC120 - Chapter 33 The gains from international trade 1 of 3 Trade in import markets increases consumer surplus by more than it lowers producer surplus. Exercise 33.1: Find exports and the trade-induced change in consumer and producer surplus. S f S C $/can 4.50 4.00 P w = 3.50 3.00 2.50 2.00 1.50 1.00 0.50 10 20 30 40 50 60 70 80 90 100 D C Q (thousands of cans) Maria Gallego EC120 - Chapter 33 The gains from international trade 2 of 3 Exercise 33.2: Find imports and the trade-induced change in consumer and producer surplus. D f S C $/can 4.50 4.00 3.50 3.00 2.50 2.00 1.50 P w = 1.00 0.50 10 20 30 40 50 60 70 80 90 100 D C Q (thousands of cans) Maria Gallego EC120 - Chapter 33 The gains from international trade 3 of 3...
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ch33b - and supplied of good Y at P = P w . Maria Gallego...

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