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Chapter 9

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CAS EC 101
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Chapter 9: application: international trade - The determinants of trade o The equilibrium without trade  Price adjusts to balance domestic supply and demand o The world price and comparative advantage  World price: the price of the good that prevails in the world in the market for that good • If world price is higher than domestic price, then country will export, vice versa - The winners and losers from trade o Small economy assumption: actions have no effect on world’s markets  Are price takers: take the world price as it is given o The gains and losses of an exporting country  When domestic supply is greater than domestic demand, country becomes an exporter  Seller benefits b/c producer surplus will increase, domestic buyers worse off  Trade increases economic well-being b/c gains of winners is more than loss of losers  Horizontal line = demand of world
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