ECON 2306 10 Government and Trade

S pinmillions pw100 pd80 d qwd300 400 qws800 q

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Unformatted text preview: 0 million for an airplane. This world price is where world supply = world demand. S P (in millions) Pw=100 Pd=80 D Qwd=300 400 Qws=800 Q ­At P=100 million, domestic suppliers are willing to supply 800 planes but domestic demand is only 300 planes. ­There exists a surplus of 500 planes. This surplus will be exported. 4 Exporting Country Exporting plane makers have a comparative advantage in making planes. This means the opportunity cost (the cost of producing the next best alternative) of the exporting country to make planes is < that of the rest of the world. 5 Exporting Country Gains from trade for Exporting Country exporting airplanes. P (in millions) Pw=100 Pd=80 Domestic Welfare for Exporting Country Before Trade Welfare Domestically: CS=A+B PS=D S TS=A+B+D A B D Qwd=300 After Trade Welfare Domestically: C CS=...
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