International trade
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International Trade. Another CS/PS argument. Let’s look at what happens in the market for steel as we decide whether or not to participate in international trade. Step One: Compare our domestic equilibrium price to the world price of steel

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International Trade

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International trade

International Trade

Another CS/PS argument


International trade1

Let’s look at what happens in the market for steel as we decide whether or not to participate in international trade.

  • Step One: Compare our domestic equilibrium price to the world price of steel

    • World price = price of a good that prevails in the world market for that good

International Trade


International trade2

  • Step One: Compare our domestic equilibrium price to the world price of steel

    • World price = price of a good that prevails in the world market for that good

  • If the world price is higher = we will export steel

  • If the world price is lower = we will import steel

  • We are essentially looking at comparative advantage!

International Trade


International trade3

Let’s say we are exporting the good. Here’s our graph:

International Trade


International trade4

Who is better off?

Who is worse off?

International Trade


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Who is better off?

DOMESTIC PRODUCERS

Who is worse off?

DOMESTIC CONSUMERS

International Trade


International trade6

What about the economy as a whole?

International Trade


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What about the economy as a whole?

BETTER OFF because producer surplus has increased more than consumer surplus decreased

International Trade


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Let’s say we are importing the good. Here’s our graph:

International Trade


International trade9

Who is better off?

Who is worse off?

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International trade10

Who is better off?

DOMESTIC CONSUMERS

Who is worse off?

DOMESTIC PRODUCERS

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International trade11

What about the economy as a whole?

International Trade


International trade12

What about the economy as a whole?

BETTER OFF because the gains to consumers outweigh the loss to producers.

International Trade


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