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Topic 5 Complete - Topic 5 Political Economy of Trade...

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Topic 5: Political Economy of Trade REQUIRED READINGS: Chiquita Brands International Online Chiquita Case Discussion: 3/17—3/20 In-class Chiquita Case Debriefing: 3/21
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When to Export When the world price is above the domestic price, the domestic industry has the comparative advantage. The domestic industry exports to the world. Exports enhance the welfare of the domestic country because: Producer surplus increases more than consumer surplus decreases
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Exports Graphically Q $ D US S US P w Q D US Q S US EXP A B C D E F Before Trade (P US ): CS = ABC PS = EF After Trade (P W ): CS = A PS = BCDEF Gains from Trade: D P US Q US
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When to Import When the world price is below the domestic price, foreign producers have the comparative advantage. The domestic industry imports from the world. Imports enhance the welfare of the domestic country because: Consumer surplus increases more than producers surplus decreases
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Imports Graphically Q $ D US S US P w Q S US Q D US IMP Before Trade (P US ): CS = A PS = BE After Trade (P W ): CS = ABCD PS = E Gains from Trade: CD P US Q US A B C D E
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Impact of Trade Restrictions A tariff is a tax placed on imports.
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