International Trade

1
International Trade

• The Case for Trade

2
Trade and Exporting Countries
3
Exporting Country Winners Losers

• Without trade,consumer surplus is FCD and
  Producer surplus is AB.
• With trade, consumer surplus is F in exporting
  country, producer surplus is CDEBA
• Producers win consumers lose, but winners can
  compensate losers

4
Trade and Importing Countries

5
Importing Country Winners Losers

• Without trade, consumer surplus is AB producer
  surplus is CDF.
• With trade, consumer surplus is ABCDE.
  Producer surplus is F.
• Consumers win producers lose, but again winners
  can compensate losers.

6
Import Quotas

Domestic Supply
Equilibrium Without Trade
Domestic Supply Import Quotas
Price w.o. trade
Equilibrium with quota
Price with quotas
World Price
Price with trade
Domestic Demand
Quantity of bananas
imports
Domestic Q plus imports
Domestic Q with quotas
7
Main Points

• Winners and losers
• Winners consumers in importing country and
  producers in exporting country
• Losers consumers in exporting country and
  producers in importing country
• Case for trade
• Total surplus is greater winners can compensate
  losers.
• What is case against trade?
• Concerns about distribution
• Cultural disruption.