1、,Application:International Trade,Chapter 9,Copyright 2001 by Harcourt, Inc.All rights reserved. Requests for permission to make copies of any part of thework should be mailed to:Permissions Department, Harcourt College Publishers,6277 Sea Harbor Drive, Orlando, Florida 32887-6777.,International Trad
2、e,What determines whether a country imports or exports a good?,International Trade,Who gains and who loses from free trade among countries?,International Trade,What are the arguments that people use to advocate trade restrictions?,Equilibrium Without Trade,Assume:A country is isolated from rest of t
3、he world and produces steel.The market for steel consists of the buyers and sellers in the country. No one in the country is allowed to import or export steel.,Equilibrium Without Trade.,0,Quantity,of Steel,Equilibrium,quantity,Domestic,supply,Domestic,demand,Producer,surplus,Consumer,surplus,Equili
4、brium Without Trade,Results:Domestic price adjusts to balance demand and supply.The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive.,World Price and Comparative Advantage,If the country decides to engage in international trade, will it be an importer
5、or exporter of steel?,World Price and Comparative Advantage,The effects of free trade can be shown by comparing the domestic price of a good without trade and the world price of the good. The world price refers to the prevailing price in the world markets.A country will either be an exporter or an i
6、mporter of the good.,World Price and Comparative Advantage,If a country has a comparative advantage, then the domestic price will be below the world price, and the country will be an exporter of the good.,World Price and Comparative Advantage,If the country does not have a comparative advantage, the
7、n the domestic price will be higher than the world price, and the country will be an importer of the good.,0,Quantity,of Steel,Domesticdemand,International Trade in an Exporting Country.,Domesticsupply,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,0,Quantity,of Steel,Worldp
8、rice,Domesticdemand,How Free Trade Affects Welfare in an Exporting Country.,Domesticsupply,Price after trade,Price before trade,A,B,C,D,Exports,0,Quantity,of Steel,Worldprice,Domesticdemand,How Free Trade Affects Welfare in an Exporting Country.,Domesticsupply,Price after trade,Price before trade,0,
9、Quantity,of Steel,Worldprice,Domesticdemand,How Free Trade Affects Welfare in an Exporting Country.,Domesticsupply,Price after trade,Price before trade,Changes in Welfare from Free Trade: The Case of an Exporting Country,The area D shows the increase in total surplus and represents the gains from tr
10、ade.,Before Trade,After Trade,Change,Consumer Surplus,A + B,A,- B,Producer Surplus,C,B + C + D,+ (B + D),Total Surplus,A + B + C,A + B + C + D,+ D,How Free Trade Affects Welfare in an Exporting Country,The analysis of an exporting country yields two conclusions: Domestic producers of the good are be
11、tter off, and domestic consumers of the good are worse off. Trade raises the economic well-being of the nation as a whole.,International Trade and the Importing Country,If the world price of steel is lower than the domestic price, the country will be an importer of steel when trade is permitted.,Int
12、ernational Trade and the Importing Country,Domestic consumers will want to buy steel at the lower world price.,International Trade and the Importing Country,Domestic producers of steel will have to lower their output because the domestic price moves to the world price.,International Trade and the Im
13、porting Country.,0,Quantity,of Steel,Domesticsupply,Domestic demand,How Free Trade Affects Welfare in an Importing Country.,0,Quantity,of Steel,Domesticsupply,World Price,Domestic demand,Price after trade,Price before trade,A,B,C,D,Imports,How Free Trade Affects Welfare in an Importing Country.,0,Qu
14、antity,of Steel,Domesticsupply,World Price,Domestic demand,Price after trade,Price before trade,How Free Trade Affects Welfare in an Importing Country.,0,Quantity,of Steel,Domesticsupply,World Price,Domestic demand,Price after trade,Price before trade,Changes in Welfare from Free Trade: The Case of
15、an Importing Country,The area D shows the increase in total surplus and represents the gains from trade.,Before Trade,After Trade,Change,Consumer Surplus,A,A + B + D,+ (B + D),Producer Surplus,B + C,C,- B,Total Surplus,A + B + C,A + B + C + D,+ D,How Free Trade Affects Welfare in an Importing Countr
16、y,The analysis of an importing country yields two conclusions: Domestic producers of the good are worse off, and domestic consumers of the good are better off. Trade raises the economic well-being of the nation as a whole because the gains of consumers exceed the losses of producers.,The Gains and L
17、osses from Free International Trade,The gains of the winners exceed the losses of the losers.The net change in total surplus is positive.,Tariffs,Tariffs are taxes on imported goods.Tariffs raise the price of imported goods above the world price by the amount of the tariff.,The Effects of a Tariff.,
18、0,Quantity,of Steel,Domestic supply,Domestic demand,The Effects of a Tariff.,0,Quantity,of Steel,Domestic supply,Domestic demand,World price,Q1S,Q1D,Price without tariff,Imports without tariff,The Effects of a Tariff.,0,Quantity,of Steel,Domestic supply,Domestic demand,Tariff,World price,Q1S,Q2S,Q2D
19、,Q1D,Price without tariff,Price with tariff,Imports without tariff,Imports with tariff,The Effects of a Tariff.,0,Quantity,of Steel,Domestic supply,Domestic demand,Tariff,World price,Q1S,Q2S,Q2D,Q1D,Imports without tariff,Imports with tariff,The Effects of a Tariff.,0,Quantity,of Steel,Domestic supp
20、ly,Domestic demand,Tariff,World price,Q1S,Q2S,Q2D,Q1D,Imports without tariff,Imports with tariff,Price with tariff,Price without tariff,The Effects of a Tariff.,0,Quantity,of Steel,Domestic supply,Domestic demand,Tariff,World price,Q1S,Q2S,Q2D,Q1D,Price without tariff,Price with tariff,Imports witho
21、ut tariff,Imports with tariff,A,B,C,E,G,Changes in Welfare from a Tariff,The area D+F shows the fall in total surplus and represents the deadweight loss of the tariff.,The Effects of a Tariff,A tariff reduces the quantity of imports and moves the domestic market closer to its equilibrium without tra
22、de.With a tariff, total surplus in the market decreases by an amount referred to as a deadweight loss.,The Effects of an Import Quota,An import quota is a limit on the quantity of imports.,The Effects of an Import Quota .,0,Quantity,of Steel,Domestic supply,Domestic demand,Equilibrium without trade,
23、The Effects of an Import Quota,Because the quota raises the domestic price above the world price, domestic buyers of the good are worse off, and domestic sellers of the good are better off.License holders are better off because they make a profit from buying at the world price and selling at the hig
24、her domestic price.,The Effects of an Import Quota .,0,Quantity,of Steel,Domestic supply,Domestic demand,World price,Q1S,Q2S,Q2D,Q1D,Price without quota,Price with quota,Imports without quota,Imports with quota,Domestic supply+Import Supply,Quota,A,B,C,E,E,F,G,D,Changes in Welfare from an Import Quo
25、ta,A+B+C+D+E+E”+F+G,A+B+C+E+E”+G,The area D+F shows the fall in total surplus and represents the deadweight loss of the quota.,Before Quota,After Tariff,Change,Consumer Surplus,Producer Surplus,Government,Revenue,Total Surplus,A+B+C+D+E+E”+F,A+B,-(C+D+E+E”+F),G,C+G,+C,None,E+E”,+(E+E”),- (D+F),The E
26、ffects of an Import Quota,With a quota, total surplus in the market decreases by an amount referred to as a deadweight loss.The quota can potentially cause an even larger deadweight loss, if a mechanism such as lobbying is employed to allocate the import licenses.,The Effects of Tariffs and Quotas,I
27、f government sells import licenses for full value, revenue equals that of equivalent tariff and the results of tariffs and quotas are identical.,Both tariffs and import quotas . . .,raise domestic prices.reduce the welfare of domestic consumers.increase the welfare of domestic producers.cause deadwe
28、ight losses.,Other Benefits of International Trade,Increased variety of goodsLower costs through economies of scaleIncreased competitionEnhanced flow of ideas,The Arguments for Restricting Trade,Jobs National Security Infant IndustryUnfair CompetitionProtection as a Bargaining Chip,Trade Agreements,
29、Unilateral: when a country removes its trade restrictions on its own.Multilateral: a country reduces its trade restrictions while other countries do the same.,NAFTA,The North American Free Trade Agreement (NAFTA) is an example of a multilateral trade agreement.In 1993, NAFTA lowered the trade barrie
30、rs among the U.S., Mexico, and Canada.,GATT,The General Agreement on Tariffs and Trade (GATT) refers to a continuing series of negotiations among many of the worlds countries with a goal of promoting free trade.GATT has successfully reduced the average tariff among member countries from about 40% af
31、ter WWII to about 5% today.,Summary,The effects of free trade can be determined by comparing the domestic price without trade to the world price.A low domestic price indicates that the country has a comparative advantage in producing the good and that the country will become an exporter.A high domes
32、tic price indicates that the rest of the world has a comparative advantage in producing the good and that the country will become an importer.,Summary,When a country allows trade and becomes an exporter of a good, producers of the good are better off, and consumers of the good are worse off.When a c
33、ountry allows trade and becomes an importer of a good, consumers of the good are better off, and producers are worse off.,Summary,A tariff a tax on imports moves a market closer to the equilibrium than would exist without trade, and therefore reduces the gains from trade.Import quotas will have effe
34、cts similar to those of tariffs.,Summary,There are various arguments for restricting trade: protecting jobs, defending national security, helping infant industries, preventing unfair competition, and responding to foreign trade restrictions.Economists, however, believe that free trade is usually the
35、 better policy.,Equilibrium Without Trade.,International Trade in an Exporting Country.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,How Free Trade Affects Welfare in an Exporting Country.,How Free Trade Affects Welfare in an Exporting Country.,How Free Trade Affects Welfa
36、re in an Exporting Country.,International Trade and the Importing Country.,How Free Trade Affects Welfare in an Importing Country.,How Free Trade Affects Welfare in an Importing Country.,How Free Trade Affects Welfare in an Importing Country.,The Effects of a Tariff.,The Effects of a Tariff.,The Eff
37、ects of a Tariff.,0,Quantity,of Steel,Domestic supply,Domestic demand,Tariff,World price,Q1S,Q2S,Q2D,Q1D,Price without tariff,Price with tariff,Imports without tariff,Imports with tariff,The Effects of a Tariff.,The Effects of a Tariff.,The Effects of a Tariff.,The Effects of an Import Quota .,The Effects of an Import Quota .,
