ib econ- 4.1: benefits of international trade

credits https://www.econinja.net/global-economy/4-1-benefits-of-international-trade

what are the benefits of international trade?

• increased competition: domestic firms now have to compete in the international market

• lower prices: increased competition and economies of scale lower prices

• greater choice due to more suppliers

• acquisition of resources is easier due to international connections

• more foreign exchange earnings

• access to larger markets

• economies of scale: the more of something is produced, the lower the per-unit cost of that product

• more efficient resource allocation

• more efficient production

draw the diagram of a domestic market before international trade

draw the diagram of a market when world price is lower than domestic price

• at world price, domestic producers are only willing and able to supply Qs, domestic consumers are willing and able to purchase at Qd.

• this causes a shortage and the difference has to be imported from abroad.

why is the world price a perfectly price elastic line?

because global trade is assumed to turn markets into a perfect competition

draw the diagram of a market when the world price is higher than domestic price

• at the world price, domestic consumers are only willing and and able to purchase Qd

• domestic producers are willing and able to produce at Qs

• this causes a surplus and the difference will have to be exported to abroad