ECON 111 Lecture Notes - Lecture 9: Import Quota, Comparative Advantage, Opportunity Cost
Document Summary
The efects of free trade can be determined by comparing the domesic price without trade to the world price. A low domesic price indicates that the country has a comparaive advantage in producing the good and that the country will become an exporter. A high domesic price indicates that the rest of the world has a comparaive advantage in producing the good and that the country will become an importer. When a country allows trade and becomes an exporter of a good, producers of the good are beter of, and consumers of the good are worse of. When a country allows trade and becomes an importer of a good, consumers are beter of, and producers are worse of. In both cases, the gains from trade exceed the losses. A tarif a tax on imports moves a market closer to the equilibrium that would exist without trade and, therefore, reduces the gains from trade.
