Chapter9+JDEM





Introduction ====//A more elaborate chapter on trade, chapter 9 continues its explanation about the benefits and gains more precisely than in chapter 3. Using all the information fro previous chapters; this chapter effectively puts economy in full practice.This chapter will blantantly show the results of free trade, the benefits of the winner against the losses of the losers, and the restrictions markets are faced with. This chapter breaks the common notion that trade is always beneficial and good, as this section shows the flaws of international trade.//====

== Before Trade, the equilibrium mainly focuses on the balance of the supply and demand curve. The producer and consumer surplus is equal to each other and the price without trade IS the price equilibrium ==




 * Now, should Skiland import or export lightsabers? The answer relies on the price of lightsabers in Skiland compared to the price of lightsabers in other countries. In other words, it is compared with the world price of the good.    **

World Price < Domestic Price Skiland should __IMPORT__ Lightsabers
Unforunately, there are winners and losers in almost any circumstance. Thus, if free trade begins in Skiland, we need to determine who will be attaining the benefits and who will be pushed into the costs of free trade. Lets say that Skiland is a price taker in the world economy. This means that they take the world price and are forced to sell at that particular price.

=// The Gains and Losses of Exporting //=

If, World Price > Domestic Price Skiland should EXPORT Lightsabers. Once trade is open, the domestic price will rise up to the world price. The next few series of events are focused on the continuous effects of one another.

Price of lightsabers increase in Skiland since Skiland now that they are price takers → the quantity of lightsabers demanded falls → the quantity of lightsabers supplied in Skiland will increase. Thus, when a Skiland EXPORTS lightsabers,

domestic producers are BETTER OFF but domestic consumers are WORSE OFF

= As you can see from the chart and graph above, when a country exports its good, the total surplus increases and the economic well-being also increases. However, consumers are relatively unhappy with the outcomes and exports, but on the economic level, this is very efficient and profitable.

=// The Pros and Cons of Importing //=

When the world price is lower than the doemstic price, Skiland will import lightsabers. This is analgous to how Koreans buy Chinese goods because they are relatively cheaper than the domestic goods.



**= Consumers are better off and producers are worse off.**
BUT, the Important factor is that either importing or exporting, the total surplus is increased either way, also increasing the well-being of the country. The economic benefits of the total surplus and economy overrides the costs of the producers or consumers.

= //What are the effects of a Tariff and Import Quota?// =

=__Effects of a Tariff__ : Brings the price closer to the world price=

=__Effects of an Import Quota__ : Limits the amount of good that can be made and sold=



=__The difference between a Tariff and a Quota__= Both Tarrifs and Quotas : raise the domestic price of the product, increase welfare, cause dead weight loss (= thus somewhat inefficient)
 * Tariff** = raises revenue for government
 * Quota** = surplus for license holders

= //Arguments for Restricting Trade// = 1. The Jobs Argument - free trade creates and destroys jobs

2. National-Security Argument - industries produce resources essential for national security

3. Infant-Industry Argument - new industries need time to adjust to the market before competing in the world markets

4. The Unfair - Competition Argument - Unfair when firms in one country are impressed with more policies than another country

5. The Protection-As-A-Bargaining-Chip Argument - threats of protectionism can make other countries reduce the amount of protectionism they particularly use Threats of protectionism can make other countries more willing to reduce the amounts of protectionism they use.



conclusion.

a. creates jobs for commoners b. creates jobs for the producers c. one nation may take over another nation d. nations can specialize in doing what it does best.
 * 1. Trade is beneficial because**

a. everyone in the country benefits. b. the gains of the winners exceed the losses of the losers. c. the losses of the losers exceed the gains of the winners. d. everyone in the country loses.
 * 2. When a country allows trade and becomes an importer of a good,**

a. both countries will benefit. b. one country benefits while the other country loses. c. Neither country benefits nor loses. d. No one benefits, but losses
 * 3. When two countries choose to engage in international trade,**

a. it can produce a product more efficiently. b. its domestic price is below the world price. c. its domestic price is above the world price. d. it can benefit from importing the product.
 * 4. A country has a comparative advantage in a product if**

a. absolute advantage. b. political advantage. c. comparative advantage. d. technical advantage. click here to check your answers
 * 5. Trade among nations is based on**