EC120 Lecture 9: Ch. 9 - Application International Trade
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The equilibrium without international trade buyers and sellers in the country. When there is no int. trade, the market for textiles consists solely of the. Country would become an exporter of textiles once trade is permitted. Case 1: if the world price of textiles > the domestic price: o. Case 2: if the world price of textiles < domestic price: o. By comparing world price and domestic price before trade, we can determine whether the country is better or worse at producing textiles than the rest of the world. To analyze the welfare effects of free trade, let us make two simplifying o o. Country is a small economy compared to the rest of the world. The country citizens are said to be price takers in the world economy. Case 1: the gains and losses of an exporting country. The world price > the domestic equilibrium price before trade. Once free trade allowed, domestic price rises to equal world price.
