CHAPTER+9

=**INTERNATIONAL TRADE** = media type="youtube" key="m2Ak8_ZYGOA" height="344" width="425" __**trade: **__ action of buying and selling goods and services

THE DETERMINANTS OF TRADE
** __**world price: **__ the price of a good that exists in the world market - responds to a price change (negative slope) - if the world price is higher than the domestic price, the domestic country will export the good (domestic country has comparative advantage) - if the world price is lower than the domestic price, the domestic country will import the good (world price has comparative advantage) - finally, if world price equals domestic price, there's no need for exports or imports 
 * THE WORLD PRICE AND COMPARATIVE ADVANTAGE

WINNERS AND LOSERS FROM TRADE
**  - once trade is allowed, the domestic price rises to equal the world price - exports from domestic country equal the difference between the domestic quantity supplied and the domestic quantity demanded at world price  sdfasd sdfasdfafadf faf**df** **Before Tradesdfasdfa fter Trade sdfasf Change**
 * GAINS AND LOSSES OF AN EXPORTING COUNTRY
 * Consumer Surplus**faf adf adf A + B<span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf A<span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf -B
 * Producer Surplus**<span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">fafadf <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf C<span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">a B + C + D<span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf +(B + D)
 * Total Surplus**<span style="color: rgb(255, 255, 255)">dfafadf <span style="color: rgb(255, 255, 255)">fafadfA A + B + C<span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf A + B + C + D<span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">a + D

- The area D shows the increase in total surplus and represents the gains from trade - In this case, sellers are better off, and buyers are worse off - Total surplus rises by an amount that equals D, indicating the trade raises a country's economic well-being as a whole

<span style="color: rgb(255, 255, 255)">sdfasd <span style="color: rgb(255, 255, 255)">sdfasdfafadf <span style="color: rgb(255, 255, 255)">faf**df** **Before Trade<span style="color: rgb(255, 255, 255)">sdfasA After Trade <span style="color: rgb(255, 255, 255)">sdfasf Change**
 * <span style="color: rgb(33, 54, 222)">GAINS AND LOSSES OF AN IMPORTING COUNTRY **
 * Consumer Surplus**<span style="color: rgb(255, 255, 255)">faf <span style="color: rgb(255, 255, 255)">ad <span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">df A <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">ad <span style="color: rgb(255, 255, 255)">df A + B + D<span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">df +(B + D)
 * Producer Surplus**<span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">fafadf <span style="color: rgb(255, 255, 255)">ad <span style="color: rgb(255, 255, 255)"> B + C<span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">ad <span style="color: rgb(255, 255, 255)">af <span style="color: rgb(255, 255, 255)">a C<span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">ad <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">d <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">ad <span style="color: rgb(255, 255, 255)">f -B
 * Total Surplus**<span style="color: rgb(255, 255, 255)">dfafadf <span style="color: rgb(255, 255, 255)">fafad A + B + C<span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf A + B + C + D<span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">ad <span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">a + D

- The area D shows the increase in total surplus and represents the gains from trade - In this case, buyers are better off, and sellerss are worse off - Total surplus rises by an amount that equals D, indicating the trade raises a country's economic well-being as a whole

**__**<span style="color: rgb(4, 143, 33)">tariff: **__ a tax on goods that are produced abroad and sold domestically (tax on imported goods) - tariff decreases the quantity of imports and moves the domestic market closer to its equilibrium (most efficient) without trade
 * <span style="color: rgb(33, 54, 222)">THE EFFECTS OF A TARIFF

<span style="color: rgb(255, 255, 255)">sdfasd <span style="color: rgb(255, 255, 255)">sdfasdfafadf <span style="color: rgb(255, 255, 255)">faf**d** **<span style="color: rgb(255, 255, 255)">s **<span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">faf <span style="color: rgb(255, 255, 255)">**f** **Before Trade<span style="color: rgb(255, 255, 255)">sdf **<span style="color: rgb(255, 255, 255)">f **<span style="color: rgb(255, 255, 255)">s **<span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">fa **<span style="color: rgb(255, 255, 255)">a After Trade <span style="color: rgb(255, 255, 255)">sdfas ****<span style="color: rgb(255, 255, 255)">s **<span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">fa <span style="color: rgb(255, 255, 255)">fa **<span style="color: rgb(255, 255, 255)">f Change**
 * Consumer Surplus**<span style="color: rgb(255, 255, 255)">faf <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">f **<span style="color: rgb(255, 255, 255)">s **<span style="color: rgb(255, 255, 255)"> A + B + C + D + E + F<span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">a **<span style="color: rgb(255, 255, 255)">s **<span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">d <span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">f A + B<span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">df -(C + D + E + F)
 * Producer Surplus**<span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">fafadf <span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">faf <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">af <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">d <span style="color: rgb(255, 255, 255)"> G<span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">ad <span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">a **<span style="color: rgb(255, 255, 255)">s **<span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)"> **<span style="color: rgb(255, 255, 255)">s **<span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">a C + G<span style="color: rgb(255, 255, 255)">adf <span style="color: rgb(255, 255, 255)">ad <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">d <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)"> **<span style="color: rgb(255, 255, 255)">s **<span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">ad <span style="color: rgb(255, 255, 255)"> +C
 * Government Revenue**<span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">fafB <span style="color: rgb(255, 255, 255)">a **<span style="color: rgb(255, 255, 255)">s **<span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">fB None<span style="color: rgb(255, 255, 255)">afB <span style="color: rgb(255, 255, 255)">afB <span style="color: rgb(255, 255, 255)">af <span style="color: rgb(255, 255, 255)">afB <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">fB <span style="color: rgb(255, 255, 255)">B **<span style="color: rgb(255, 255, 255)">s **<span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">B E<span style="color: rgb(255, 255, 255)">afB <span style="color: rgb(255, 255, 255)">afB <span style="color: rgb(255, 255, 255)">afB <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">fB <span style="color: rgb(255, 255, 255)">B <span style="color: rgb(255, 255, 255)">afB +E
 * Total Surplus**<span style="color: rgb(255, 255, 255)">dfafa <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)"> A + B + C + D + E + F + G<span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)">f A + B + C + E + G<span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">f <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)">df <span style="color: rgb(255, 255, 255)">a <span style="color: rgb(255, 255, 255)"> <span style="color: rgb(255, 255, 255)"> -(D + F)

- The area D + F represents the "deadweight loss" of tariff - "Deadweight loss" occurs when incentives such as tax distorts the system and pushes the allocation of resources away from the social optimum point - "Deadweight loss" is the money spent, yet the money that no one receives

THE ARGUMENTS FOR RESTRICTING TRADE
<span style="color: rgb(33, 54, 222)"> media type="file" key="Chaper 9 - trade arguments.m4a"

=QUESTIONS FOR REVIEW= Q1: When does a country export/import, and why? A1:<span style="color: rgb(138, 10, 116)"> A country exports when the world price is higher than its domestic price because it means that the domestic country has comparative advantage on producing the product. It's cheaper for domestic country to make the good than the world. On the other hand, a country imports when the world price is lower than its domestic price because this time, the world has the comparative advantage on producing the product. A country wouldn't spend more money on a product by producing it domestically when it can import it at a cheaper price.

Q2: Although not mentioned in the text, what's the difference between a QUOTE and a TARIFF? A2: <span style="color: rgb(138, 10, 116)">Tariff and quota are pretty much two same things. They both mean the tax the exporting country puts on to the importing country. The only difference would be that in the case of quota, once the domestic country reaches a certain amount, it becomes cheaper to produce the product domestically than through world price. Thus, the importing country switches back to domestic production, shifting the supply curve to the right.

CITATION
[|http://www.personal.psu.edu/~dxl31/ec340/world.jpg] http://internationalecon.com/Trade/Tch100/100img10.gif

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