Chapter+9+Application+International+Trade+(Joon,+Scott,+and+Steven)

Key Terms:
 * World Price:** the price of a good that prevails in the world market for that good.
 * Tariff:** a tax on goods produced from abroad and sold domestically.

Intro: trade to benefit. Trade should benefit both sides. People trade because they all want to profit same goes for an economy.

Trade starts by comparing World Price and domestic price. If the world price is **higher** than the domestic price, the country will **EXPORT.** If the world price is **lower** than the domestic price, the country will **IMPORT.** To sum up, the country will decide to trade depending on Comparatice Advantage.
 * The World Price and Comparative Advantage**

Gains and Losses of an Exporting Country
When a country exports, trade forces the domestic prices to rise to the world price.

> > > Once trade is permitted, the domestic prices will increase equal the world price. **See the graph below!** The supply curve represents the quantity of steel produced domestically, and the demand curve shows the quantity consumed domestically. > Sellers were better off surplus increased from C to B+C+D. > Buyers are worse off because consumer surplus fell from A+B to A. > The area D is the total surplus. This means the economy as a whole benefited. > > > > Image Courtesy to: > Udayan Roy > http://myweb.liu.edu/~uroy/eco41 > September 2006
 * When a country allows trade and becomes and exporter of a good, the ** Domestic Producers ** are better off, and domestic consumers of the good are worse off.
 * Trade is best for the overall economy because the gains of winners are far more than the losses of losers.Trade Should be Restricted?

The Gains and Losses of an Importing Country
When a country imports, trade forces the domestic price to decrease to the world price. > > > Once trade is permitted, the domestic price falls to equal the world price. Look at the graph below! The supply curve shows the amount of produced domestically, and the demand curve represents the quantity consumed domestically. > Buyers are better off because consumer surplus rises from A to A+B+D. > Sellers are worse off because producer surplus falls from B+C+ to C. > D represents the total surplus. Therefore, the economy as a whole benefit from trade. > > > > Image Courtesy to: > Udayan Roy > http://myweb.liu.edu/~uroy/eco41 > September 2006
 * When a country becomes an importer, the domestic consumers are better off and the domestic producers are worse off.
 * Trade raises the economic well-being of the country as a whole because the winners' gains are far more than the losers' losses.

The Effects of Trade
A tariff, a tax on imported goods, is imposed often to protect the domestic producers. > > Let's discuss the effects of a tariff through the graph below. Take a Look! > > **Before Tariff:** > > **After Tariff:** > > > > > Image courtesy to: http://www.youth2freetrade.cn/fa1.htm > > > ***IMPORTANT:** Tariffs distorts incentives and pushes the allocation of scarce resouces away from the optimum
 * *Note: //The tariff reduces the quantity of imports and moves the domestic market closer to its equilibrium without trade///
 * The domestic producers are better off and domestic buyers are worse off.
 * The government earns money.
 * the domestic price and the world price were EQUAL.
 * Consumer surplus: A+B+C+D+E+F
 * Producer Surplus: G
 * Government revenue: none
 * Total Surplus: A+B+C+D+E+F+G
 * Domestic price is higher than the world tariff with the addition of tariff.
 * Consumer Surplus: A+B
 * Producer Surplus: C+G
 * Government Revenue: E(size of tariff)
 * Total Surplus: A+B+C+E+G
 * Deadweight loss(fall of total surplus): D+F
 * media type="youtube" key="VKlQAVsK7b8" height="344" width="425"

People Want to Restrict Trade????
Trade seems to benefit the economy but why do people argue against trade? The arguments are the following: Job Argument, National Security Argument, the Infant-Industry Argument, the Unfair-Competition Argument, and the Protection-as-a Bargaining-Chip Argument. > > **The Job Argument:** > A lot of people argue that trade can destroy domestic job opportunities. For example, importing means there is less room for our producers. But at the same time, these people don't realize when we EXPORT, domestic jobs are created. > > **The National-Security Argument:** > This argument is posed because people are afraid their countries may be dependent on other countries. For example, let's say there is Country A and Country B. Country A imports steel from Country B;however, if the two countries go to war, Country A will be left helpless because they depended on Country B for steel that makes weapons. > > **The Infant-Industry Argument:** > New Industries sometimes argue for temporary trade restrictions to help them get started. A lot of people believe new industries are not competent with the foreign firms. Therefore, a temporary trade restriction can help foster new domestic industries. > > **Unfair-Competition Argument:** > A common belief is that trade is only fair if every country follows by the same rules. Every country has its own individual laws. Therfore, it is unfair for countries to compete in the international market. > > **The Protection-as-a-Bargaining-Chip Argument:** > Trade restrictions can get rid of trade restrictions. You may be thinking what this means. This means bargain can result in free trade. For example, if Country A tells Country B that if they don't get rid of the tariff on wheat, they will impose tariff on steel. The end result both countries get rid of tariffs and free trade comes into play.

Conclusion: We've discussed trades using graphs and logic. Seeing both sides of trade, we have a better understanding in how countries make economic decisions in trades. >

**Extra/Something Interesting**

 * Below is a video on the debate of trade. Trade is supposed to benefit both sides but does this rule fit in every situation?
 * Check it out!
 * media type="youtube" key="70-rMrTKQVY" height="344" width="425"