Chapter+9+Application+-+International+Trade.JAKS

=Chapter 9. Application - International Trade =



 Definitions
World price: the price of a good that prevails in the world market for that good Tariff: a tax on goods produced abroad and sold domestically



 Learning Objectives

 * Applying the benefits / losses of trade in a global view!!


 * 1. Before trading**

Must check out:

World price: the price of a good that prevails in the world market for that good.

If the world price of product is higher than the domestic price, then export steel should be permitted. If the world price of steel is lower than the domestic price, import should be allowed.
 * The domestic price reflects the opportunity cost.**

Because the domestic quantity supplied is greater than the domestic quantity demanded, the country can sell steel to other countries (exporter) This demand curve is perfectly elastic because the country that has small economy compared to the world can sell as much steel as it wants at the world price Domestic producers of the good are better off and domestic consumers of the good are worse off. Trade raises the economic well-being of a nation in the sense that the gains for the winners exceed the losses of the losers.
 * 2. Export**

The domestic quantity supplied is less than the domestic quantity demanded. The difference between the domestic quantity demanded and the domestic quantity supplied is bought from other countries, and the country becomes the importer. The supply curve is perfectly elastic because the country has relatively small economy compared to the world, and can buy as much steel as it wants at the world price. Domestic consumers of the good are better off, and domestic producers of the good are worse off. Trade raises the economic well-being of a nation in the sense that the gains of the winners exceed the losses of the losers.
 * 3. Import**


 * 4. Tariff**

E = government revenue D = over production(deadweight loss) F = under consumption(deadweight loss)

1) the tariff on steel raises the price of steel that domestic producers can charge above the world price, and encourages them to increase production of steel. 2) the tariff raises the price that domestic steel buyers have to pay, and encourages them to reduce consumption of steel.
 * A tariff causes a deadweight loss simply because a tariff is a type of tax**

1) Jobs Argument: Because of free trade, domestic company may decrease size of workforce and domestic workers lose jobs. 2) National Security Argument: If an industry is threatened with competition from other countries, opponents of free trade often argue that the industry is vital for national security. 3) Infant Industry Argument:New industries sometimes argue for temporary trade restrictions to help them started. After a period of time, the industry will mature and will be able to compete with foreign firms. 4) Unfair Competition Argument: If countries don't play by the same rules, the trade might be unfair. 5) Protection as a Bargaining Chip Argument: Restrictions of trade can be useful when countries bargain with trade partners.  = =  Just a review of TRADE in of course, 60 seconds
 * Arguments for restricting trade**

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=**THANK YOU **=



**Review Questions **
If a country allows trade and the domestic price of a good is higher than the world price  To correctly analyze the welfare effects of free trade on an economy, economists must assume that the country  A tariff is a tax placed on <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"> When a country takes a multilateral approach to free trade it <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"> countries which limit foreign trade are likely to Answers9.Jaks
 * 1) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">the country will become an exporter of the good
 * 2) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">the country will become an importer of the good
 * 3) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">the country will neither export nor import the good
 * 4) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">additional information about demand is needed to determine wether the country will export of import the good
 * 1) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">has a comparative advantage in the product
 * 2) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">is the only producer of the product
 * 3) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">is a price taker
 * 4) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">has an absolute advantage in the product
 * 1) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">exported goods that lowers the domestic price below the world price
 * 2) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">exported goods that lowers the domestic price below the world price
 * 3) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">imported goods that raises the domestic price above the world price.
 * 1) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">removes trade restrictions of its own
 * 2) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">reduces its trade restrictions while other countries do the same
 * 3) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">does not remove trade restrictions no matter what other countries do
 * 4) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">is willing to trade with multiple countries at once
 * 1) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">forego the additional surplus that trade allows, but will probably enjoy economies of scale
 * 2) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">forego the additional surplus that trade allows, but will be compensated by a higher rate of technological change
 * 3) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">forego the additional surplus that trade allows, but will have a lower rate of unemployment
 * 4) <span style="border-collapse: separate; color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">have more firms with domestic market power.

**<span style="background-color: #811a9e; color: #ffffff; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: center;">Work Cited **
image: http://cleopatraholdings.com/yahoo_site_admin/assets/images/International_Trade.57131757.jpg video: http://www.youtube.com/watch?v=FpTBjRf8lGs image: http://www.cartoonstock.com/lowres/dpa0283l.jpg questions: mr. ski