ECON101 Lecture Notes - Lecture 9: Deadweight Loss, Absolute Advantage, Invisible Hand

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brownsheep612

24 Sep 2016

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Olivia Mesta

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ECON101 Full Course Notes

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9: application: international trade: the effects of free trade can be determined by comparing the domestic price without trade to the world price. A low domestic price indicates that the country has a comparative advantage in producing the good and that the country will become an exporter. When a country allows trade and becomes an importer of a good, consumers are better off, and producers are worse off. In both cases, the gains from trade exceed the losses: a tariff a tax on imports moves a market closer to the equilibrium that would exist without trade and, therefore, reduces the gains from trade. Although some of these arguments have some merit in some cases, economists believe that free trade is usually the better policy. The textile market is well suited to examining the gains and losses from international trade: textiles are made in many countries around the world, and there is much world trade in textiles.

Related Questions

Suppose the market for oranges in a small country is closed to international trade. The domestic price is $3 per lb, at which 10,000 lbs are bought and sold in the country, while the world price is $4 per lb. If the country opens up to free trade with the world, the domestic quantity demanded at the world price will be 8,000 lbs, and the domestic quantity supplied at the world price will be 12,000 lbs.

A. Which of the following statements is true?

a. The country will become an importer of oranges because it has a comparative advantage in the production of oranges

b. The country will become an exporter of oranges because it has a comparative advantage in the production of oranges

c. The country will become an importer of oranges because the world has a comparative advantage in the production of oranges

d. The country will become an exporter of oranges because the world has a comparative advantage in the production of oranges

B. At what price (per lb.) will oranges be bought and sold in the country after opening up to trade?

a. $3

b. $4

c. $3.5

C. After opening up to trade, the level of exports/imports for the country will be:

a. 8,000 lbs.

b. 12,000 lbs.

c. 10,000 lbs.

d. 4,000 lbs.

D. How much (in $) is the net gain from trade for this country in opening up to free trade?

coralbadger702

How can trade enhance the economic well-being of a nation?

a) trade puts downward pressure on the prices of all goods

b) trade results in an increase in total surplus compared with a closed economy

c) the gains of domestic producers of a good exceed the losses of domestic consumers of the good, regardless of whether the nation imports or exports the good in question

d)both domestic producers and domestic consumers become better off with trade, regardless of whether the nation imports or exports the good in question.

lavenderyellowjacket825

1. If we know that Canada exports maple syrup, we can conclude that maple syrup consumers in Canada are worse off than they would be in the absence of trade.

Is the statement true or false?

2. When a country opens up to trade in a good for which it has a comparative advantage, and the country begins to export the good, we can conclude that:

	a.	The domestic price will fall after trade opens up.
	b.	The total surplus for this good will increase as a result of opening up the market to international trade.
	c.	Opening the market to international trade will create a deadweight loss.
	d.	Both buyers and sellers in that country will be better off as a consequence of opening up the market to international trade.

cyanturtle416

ECON101 Lecture Notes - Lecture 9: Deadweight Loss, Absolute Advantage, Invisible Hand

ECON101 Full Course Notes

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