1. Chapter 9 International Trade

2. The Determinants of Trade
Without international trade, domestic supply & domestic demand meet at an equil. price.
World price = price of a good that prevails in world market
If world price < domestic price, you import;
if world price > domestic price, you export
- Both based on comparative advantage

3. Winners and Losers from Trade
Assumption: the country is small compared to world (price takers)
Example of an Exporting Country

4. Gains & Losses from Trade
Exporting country:
Domestic producers are better off and domestic consumers are worse off
Trade raises economic well-being of a nation; rise in total surplus

5. Gains & Losses of an Importing Country
World price below domestic price leads to imports

6. Winners & Losers Importing Country:
When importing, domestic consumers are better off, and domestic producers are worse off
Trade raises economic well-being of a nation with increased total surplus
Trade policies expands size of economic pie, but also creates winners & losers

7. The Effects of a Tariff Tariff - tax on imports
Tariff raises price of imports above the world price (by size of tariff) and pushes it closer to price that would prevail without trade

8. Effects of a Tariff
By raising price, it reduces the quantity of imports and moves the market closer to equilibrium without trade
Domestic sellers are better off, domestic buyers are worse off
Total surplus has fallen, creating DWL (because a tariff is a tax)

9. Effects of an Import Quota
Limit on the quantity of a good that can be produced abroad and sold domestically
Shifts supply curve to right by size of quota