Econ - International Trade
Econ - International Trade Economics 150
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This 2 page Class Notes was uploaded by Elina Doolabh on Wednesday February 24, 2016. The Class Notes belongs to Economics 150 at Wake Forest University taught by Dr. Veronica Sovero in Winter 2016. Since its upload, it has received 10 views. For similar materials see Introduction to Economics in Economcs at Wake Forest University.
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Date Created: 02/24/16
CS, PS, and International Trade Economics 150 -Can the US increase its total surplus when it engages in trade? -There are winners and losers, but total surplus increases - Government intervention will create DWL Setup P = world price of a good P = domestic price of a good without trade **Consumers lose out on international trade, while producers make profit If PS < P , the US has a comparative advantage in this good US W If P > P , then the US does NOT have a comparative advantage Ex. Soybean Market If the US opens itself to international trade, then it must take on the world price of soybeans US Since the P of soybeans in this example is $2 cheaper than the world price, the price of soybeans in the US goes up by $2 since they take on the world price. o As a result, the demand for soybeans in the US goes down, but the quantity supplied by the US suppliers goes up. o The difference between the quantity supplied by the US suppliers and the quantity demanded in the US market is what is exported. Recap - If a country allows for free trade: o Exports: producers gain from trade (gain surplus) o Consumers lose surplus o Overall increase in surplus (gains from trade) Imports - If domestic supply ≠ domestic demand, then countries import the difference - Consumers are happy to import because they gain surplus, producers lose some surplus US W P > P Export CS ↓ PS ↑ Change in total surplus = positive PUS < PW Import CS ↑ PS ↓ Change in total surplus = positive - When a country imports goods, producers will try to restrict trade by using tariffs - Tariffs make the import more expensive. It is a way of discouraging imports - They might also implement quotas o Quota: a cap on the number of an item that can be imported Trade increases total surplus. So why are we restricting trade / why are so many people opposed to free trade? 1. Jobs get outsourced Reduction in employment for that good where the US does NOT have a comparative advantage, but, consumers will have extra money to spend on other goods. (Increase employment in other sectors) We have a comparative advantage in other goods (Those sectors win benefit from trade) Restrictions: wasted time and resources deciding what goods get tariffs, what goods don’t Santa costume lawsuit o Cheap Santa suit = classified as a festive good (NO tariff) o Fancy Santa suit = apparel (tariff)
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