TOPIC 9: International trade

What are imports?

Goods and services bought domestically but produced in other countries

What are exports?

Goods and services produced domestically but sold in other countries

What is the world price? What is it determined by?

the price of a good that prevails in the world market for that good.
- World demand and world supply of a good determine the world price of the good

What is free trade?

trade between countries that is without government restrictions.

What is autarky?

A situation in which a country does not trade with other countries

What is driving international trade?

comparative advantage

When the world price is below the domestic price, what does that country become?

it becomes an importer of that good
- the foreign industry has the comparative advantage

How do you find the quantity imported on graph?

- is the difference between quantity bought and and quantity produced

When the world price is above the domestic price, what does the country become?

becomes an exporter of the good
- the domestic industry has the comparative advantage

How do you find the quantity exported on graph?

- is the difference between quantity bought and and quantity produced

What does international trade do?

lowers the price of an imported good and raises the price of an exported good

When a country allows trade and becomes an exporter of a good, who is better off? who is worse off?

domestic producers of the good are better off and domestic consumers of the good are worse off

When a country allows trade and becomes an importer of a good, who is better off? who is worse off?

domestic consumers of the good are better off, and domestic producers of the good are worse off.

How does trade make people better off if there are winners and losers of trade?

- b/c the gains of the winners exceed the loss of the losers

What is a tariff? How does it affect the imports/exports of a good

A tax on imported goods
- imports decrease, making social lost (deadweight loss)
- producer surplus increases, consumer surplus decreases
- tariff revenue is made (add graph)

What is an import quota? What do they do?

a limit on the quantity of imports
- reduce the quantity of imports
- Raise the domestic price of the good
- decrease welfare of consumers, increase welfare of producers
- creates deadweight loss

What is the difference between a tariff and an import quota?

- tariff raises revenue for gov't
- import quota creates surplus for those who get the license to import

import quota graph

add graph