ECON1010 Lecture Notes - Lecture 13: Takers, Behavioral Economics, Economic Surplus
All diagrams come from Patricia Ramirez de la Vina’s powerpoint “International Trade and Behavioral Economics”
Lecture 13 Notes - International Trade and Behavioral Economics
International Trade
● Imports
○ Goods produced abroad and sold domestically
○ Cars, computers, petroleum
● Exports
○ Goods produced domestically and sold abroad
○ Planes, helicopters, cars
● Comparative Advantage
○ Country has a comparative advantage if it can produce a good cheaper than
other countries
■ Cheaper produce a good in one country than another
○ Country will export a good if it has a comparative advantage
● Pw = world price of a good
○ Pd = domestic price
○ If Pd < Pw, it is cheaper to produce a good domestically
○ If Pw < Pd, it is cheaper to produce a good in another abroad
● Small economies (small countries) are price takers
○ Assuming all countries are small economies, Pw is the only price
● Benefits of International Trade
○ Consumers have greater variety of goods
○ Producers sell more because there is a larger market
■ Lowers costs because they produce on a larger scale
○ Competition from abroad reduces market power of domestic firms
Export
●
○ If Pw = $6, this country is going to export the good
○ There is a surplus of 450 units at the world price
○ Surplus is exported
○ Without trade
■ Consumer surplus is CS = A + B
find more resources at oneclass.com
find more resources at oneclass.com
All diagrams come from Patricia Ramirez de la Vina’s powerpoint “International Trade and Behavioral Economics”
■ Producer Surplus is PS = C
■ Total Surplus TS = A + B + C
○ With trade
■ Consumer surplus CS = A
■ Producer Surplus is PS = B + C + D
■ Total Surplus is TS = A + B + C + D
■ Gain from trade is D
○ Producer gains from exporting
Import
●
○ If Pw = $1500, this country is going to import plasma TVs
○ There is a shortage of 400 units
■ Shortage will be imported
○ Without trade
■ Consumer surplus is CS = A
■ Producer Surplus is PS = B + C
■ Total Surplus is TS = A + B + C
○ With trade
■ Consumer surplus CS = A + B + D
■ Producer Surplus is PS = C
■ Total Surplus is TS = A + B + C + D
■ Gain from trade is D
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Lecture 13 notes - international trade and behavioral economics. Country has a comparative advantage if it can produce a good cheaper than other countries. Cheaper produce a good in one country than another. Country will export a good if it has a comparative advantage. Pw = world price of a good. If pd < pw, it is cheaper to produce a good domestically. If pw < pd, it is cheaper to produce a good in another abroad. Small economies (small countries) are price takers. Assuming all countries are small economies, pw is the only price. Producers sell more because there is a larger market. Lowers costs because they produce on a larger scale. Competition from abroad reduces market power of domestic firms. If pw = , this country is going to export the good. There is a surplus of 450 units at the world price. Consumer surplus is cs = a + b.