ECON111 Lecture Notes - Lecture 7: Export Subsidy, Export Restriction, Economic Surplus

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limehound700

30 May 2018

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Week 7 Global Markets and Trade

Imports - the goods and services that we buy

Exports - the goods and services we sell

International Trade

- Comparative advantage drives trade between countries

- When you trade both countries are better off

- National comparative advantage = the ability for a nation to produce a good at

a lower opportunity cost than any other nation

- Comparative Advantage = the ability to produce at a lower opportunity cost

- Consumer surplus = maximum price willing to pay minus what you actually

pay (link the demand curve and the maximum price lines together)

- Producers surplus = minimum price willing to pay minus what you actually sell

(link the minimum price line and the supply curve)

- Import if the world price is lower and export if the world price is higher

Importing

Consumers gain from trade

Producers lose from trade

Free trade (compared to no trade)

= consumer surplus has increased

- Because consumers pay less

- Consumers get to buy more

= producers surplus has decreased

- Producers sell for less

- Producers sell less

= australia as a whole benefits

- Net gain from trade

- Surplus has increased

Exporting

Producers gain from trade

Consumers lose from trade

Free trade (compared to no trade)

= producers surplus increased

- Sell more

- Sell for more

= consumer surplus decreased

- Buy less

- Buy for more money

= Australia as a whole benefits

- Net gain from trade

- Surplus has increased

Winners and Losers

- International trade lowers the price of imported goods

- And raises the price of exported goods

- Buyers benefit from low prices

- Sells benefit from higher prices

- This is measured by the amount of surplus (highest surplus wins)

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Document Summary

Imports - the goods and services that we buy. Exports - the goods and services we sell. When you trade both countries are better off. National comparative advantage = the ability for a nation to produce a good at a lower opportunity cost than any other nation. Comparative advantage = the ability to produce at a lower opportunity cost. Consumer surplus = maximum price willing to pay minus what you actually pay (link the demand curve and the maximum price lines together) Producers surplus = minimum price willing to pay minus what you actually sell (link the minimum price line and the supply curve) Import if the world price is lower and export if the world price is higher. International trade lowers the price of imported goods. And raises the price of exported goods. This is measured by the amount of surplus (highest surplus wins) Increase exports in other industries e. g. coal.

Related Questions

1. We can conclude that international trade is beneficial because, regardless of whether the country imports or exports a good, the overall increase in well-being outweighs the losses associated with trade.

Is the statement true or false?

2. Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run. This observation helps to explain why many economists are skeptical about the:

a. Unfair-competition argument.

b. Infant-industry argument.

c. national-security argument.

d. Jobs argument

3. Suppose that the U.S. has a comparative advantage in the production of spreadsheet software. As a result of opening up the market to international trade:

a. U.S. citizens benefit from lower software prices, increasing consumer surplus in the market.

b. U.S. producers benefit from higher software prices, increasing producer surplus in the market.

c. U.S. software producers are harmed since the price that these producers receive will decline as the price falls to the world price.

d. total surplus in this market will remain unchanged, as the decline in benefits received by software producers exactly balances the increase in benefits received by US software consumers.

blushzebra257

215. Economists examine pollution from the perspective of the:
A) preferences of people.
B) intensity and duration of the harm to resources.
C) desires of government bureaucrats.
D) intent of business firms in the maximization of profits.

212. Free trade is beneficial because it:
A) reduces competition.
B) leads to less use of the world's resources.
C) results in a wider array of consumer products.
D) leads to the production of free goods.

206. If a country has a comparative advantage in the production of a good:
A) it can produce that good at a lower opportunity cost.
B) it will find trade most beneficial when it trades with another country that has a comparative advantage in the same good.
C) it will not find trade beneficial because other countries won't have a comparative advantage in other goods.
D) it must also have an absolute advantage in the good.

203. Which of the following statements is true?
A) Nations have generally moved toward freer international trade policies over the past few decades.
B) Nations all over the world have recently raised trade barriers.
C) Eastern Europe and the Former Soviet Union countries have reduced trade in the last decade.
D) NAFTA lowered trade barriers between the United States and Mexico but raised them between the United States and Canada.

olivebuffalo87

what is a key factor that determines a firm's profitability?

A differentiation of a firm's product from other products

B factors affecting a firm's entire market

C a firm's average cost of production relative to that of competing firms

D chance events

E all of the above

economic theory suggests countries benefit from international trade by producing more of those good and services for which they have a comparative advantage (and less of that for which a country does not have a comparative advantage). However, countries rarely specialize completely, why?

even with international trade, countries rarely specialize completely because

A, all goods and services can be traded internationally

B, some countries would lose as a result of free trade

C, consumers in different countries have homogeneous tastes

D, some countries do not have an absolute advantege producing anything

E, production of most goods involves increasing opportunity costs.

ECON111 Lecture Notes - Lecture 7: Export Subsidy, Export Restriction, Economic Surplus

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