1. International Trade The Case for Trade

2. Trade and Exporting Countries Quantity of bananas Domestic Demand Domestic Supply World Price Price w.o. trade Price with trade $ Exports A B C D E F

3. Exporting Country: Winners & Losers zWithout trade,consumer surplus is F+C+D and Producer surplus is A+B. zWith trade, consumer surplus is F in exporting country, producer surplus is C+D+E+B+A zProducers win; consumers lose, but winners can compensate losers Quantity of bananas Domestic Demand Domestic Supply Wo rld Pri ce Pric e w.o. trad e Price with trade $ Expo rts A B C D E F

4. Trade and Importing Countries $ Quantity of bananas Domestic Demand Domestic Supply World Price Price w.o. trade Price with trade Imports A B C D E F

5. Importing Country: Winners & Losers zWithout trade, consumer surplus is A+B; producer surplus is C+D+F. zWith trade, consumer surplus is A+B+C+D+E. Producer surplus is F. zConsumers win; producers lose, but again winners can compensate losers. Quantity of bananas Domestic Demand Domestic Supply World Price Price w.o. trade Price with trade Imports A B C D E F

6. Import Quotas Quantity of bananas Domestic Demand Domestic Supply World Price Price w.o. trade Price with quotas $ Domestic Supply +Import Quotas Domestic Q with quotas Equilibrium Without Trade Price with trade Equilibrium with quota imports Domestic Q plus imports

7. Main Points zWinners and losers yWinners: consumers in importing country and producers in exporting country yLosers: consumers in exporting country and producers in importing country zCase for trade yTotal surplus is greater; winners can compensate losers. zWhat is case against trade? yConcerns about distribution yCultural disruption.