1、Consider what deter mines whether a countr y impor ts or expor ts a good Examine who wins and who loses fr om inter national trade Lear n that the gains to winners fr om inter national trade exceed the losses to losers If you check the labels on the clothes you are now wearing, you will probably fin
2、d that some of your clothes were made in another country. A century ago the textiles and clothing industry was a major part of the U.S. economy, but that is no longer the case. Faced with foreign competitors that could produce quality goods at low cost, many U.S. firms found it increasingly difficul
3、t to produce and sell textiles and clothing at a profit. As a result, they laid off their workers and shut down their fac- tories. Today, much of the textiles and clothing that Americans consume are im- ported from abroad.The story of the textiles industry raises important questions for economic pol
4、- icy: How does international trade affect economic well-being? Who gains and who loses from free trade among countries, and how do the gains compare to the losses?Analyze the welfar e ef fects of tarif fs and impor t quotas Examine the ar guments people use to advocate trade r estrictions 179 Chapt
5、er 3 introduced the study of international trade by applying the princi- ple of comparative advantage. According to this principle, all countries can bene- fit from trading with one another because trade allows each country to specialize in doing what it does best. But the analysis in Chapter 3 was
6、incomplete. It did not explain how the international marketplace achieves these gains from trade or how the gains are distributed among various economic actors.We now return to the study of international trade and take up these questions. Over the past several chapters, we have developed many tools
7、for analyzing how markets work: supply, demand, equilibrium, consumer surplus, producer surplus, and so on. With these tools we can learn more about the effects of international trade on economic well-being.THE DETERMINANTS OF TRADE Consider the market for steel. The steel market is well suited to e
8、xamining the gains and losses from international trade: Steel is made in many countries around the world, and there is much world trade in steel. Moreover, the steel market is one in which policymakers often consider (and sometimes implement) trade restric- tions in order to protect domestic steel p
9、roducers from foreign competitors. We ex- amine here the steel market in the imaginary country of Isoland.THE EQUILIBRIUM WITHOUT TRADE As our story begins, the Isolandian steel market is isolated from the rest of the world. By government decree, no one in Isoland is allowed to import or export stee
10、l, and the penalty for violating the decree is so large that no one dares try.Because there is no international trade, the market for steel in Isoland consists solely of Isolandian buyers and sellers. As Figure 9-1 shows, the domestic price ad- justs to balance the quantity supplied by domestic sell
11、ers and the quantity de- manded by domestic buyers. The figure shows the consumer and producer surplus in the equilibrium without trade. The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive from the steel market.Now suppose that, in an election upset,
12、Isoland elects a new president. The president campaigned on a platform of “change” and promised the voters bold new ideas. Her first act is to assemble a team of economists to evaluate Isolandian trade policy. She asks them to report back on three questions: If the government allowed Isolandians to
13、import and export steel, what would happen to the price of steel and the quantity of steel sold in the domestic steel market? Who would gain from free trade in steel and who would lose, and would the gains exceed the losses? Should a tariff (a tax on steel imports) or an import quota (a limit on ste
14、el imports) be part of the new trade policy?Price of SteelEquilibrium priceConsumer surplusProducer surplusEquilibrium quantityDomestic supplyDomestic demandQuantity of SteelFigure 9-1 THE EQUILIBRIUM WITHOUT INTERNATIONAL TRADE . When an economy cannot trade in world markets, the price adjusts to b
15、alance domestic supply and demand. This figure shows consumer and producer surplus in an equilibrium without international trade for the steel market in the imaginary country of Isoland.After reviewing supply and demand in their favorite textbook (this one, of course), the Isolandian economics team
16、begins its analysis.THE WORLD PRICE AND COMPARATIVE ADVANTAGE The first issue our economists take up is whether Isoland is likely to become a steel importer or a steel exporter. In other words, if free trade were allowed, would Isolandians end up buying or selling steel in world markets?To answer th
17、is question, the economists compare the current Isolandian price of steel to the price of steel in other countries. We call the price prevailing in world markets the world price. If the world price of steel is higher than the domestic price, then Isoland would become an exporter of steel once trade
18、is permitted. Isolandian steel producers would be eager to receive the higher prices available abroad and would start selling their steel to buyers in other countries. Conversely, if the world price of steel is lower than the domestic price, then Isoland would be- come an importer of steel. Because
19、foreign sellers offer a better price, Isolandian steel consumers would quickly start buying steel from other countries.In essence, comparing the world price and the domestic price before trade in- dicates whether Isoland has a comparative advantage in producing steel. The do- mestic price reflects t
20、he opportunity cost of steel: It tells us how much an Isolandian must give up to get one unit of steel. If the domestic price is low, the cost of producing steel in Isoland is low, suggesting that Isoland has a comparative advantage in producing steel relative to the rest of the world. If the domest
21、ic price is high, then the cost of producing steel in Isoland is high, suggesting that foreign countries have a comparative advantage in producing steel.world price the price of a good that prevails in the world market for that goodAs we saw in Chapter 3, trade among nations is ultimately based on c
22、ompar- ative advantage. That is, trade is beneficial because it allows each nation to spe- cialize in doing what it does best. By comparing the world price and the domestic price before trade, we can determine whether Isoland is better or worse at pro- ducing steel than the rest of the world.QUICK Q
23、UIZ: The country Autarka does not allow international trade. In Autarka, you can buy a wool suit for 3 ounces of gold. Meanwhile, in neighboring countries, you can buy the same suit for 2 ounces of gold. If Autarka were to allow free trade, would it import or export suits?THE WINNERS AND LOSERS FROM
24、 TRADE To analyze the welfare effects of free trade, the Isolandian economists begin with the assumption that Isoland is a small economy compared to the rest of the world so that its actions have negligible effect on world markets. The small-economy as- sumption has a specific implication for analyz
25、ing the steel market: If Isoland is a small economy, then the change in Isolands trade policy will not affect the world price of steel. The Isolandians are said to be price takers in the world economy. That is, they take the world price of steel as given. They can sell steel at this price and be exp
26、orters or buy steel at this price and be importers.The small-economy assumption is not necessary to analyze the gains and losses from international trade. But the Isolandian economists know from experi- ence that this assumption greatly simplifies the analysis. They also know that the basic lessons
27、do not change in the more complicated case of a large economy.THE GAINS AND LOSSES OF AN EXPOR TING COUNTR YFigure 9-2 shows the Isolandian steel market when the domestic equilibrium price before trade is below the world price. Once free trade is allowed, the domestic price rises to equal the world
28、price. No seller of steel would accept less than the world price, and no buyer would pay more than the world price.With the domestic price now equal to the world price, the domestic quantity supplied differs from the domestic quantity demanded. The supply curve shows the quantity of steel supplied b
29、y Isolandian sellers. The demand curve shows the quantity of steel demanded by Isolandian buyers. Because the domestic quantity supplied is greater than the domestic quantity demanded, Isoland sells steel to other countries. Thus, Isoland becomes a steel exporter.Although domestic quantity supplied
30、and domestic quantity demanded differ, the steel market is still in equilibrium because there is now another participant in the market: the rest of the world. One can view the horizontal line at the world price as representing the demand for steel from the rest of the world. This demand curve is per
31、fectly elastic because Isoland, as a small economy, can sell as much steel as it wants at the world price.Price after tradePrice before tradeWorld priceFigure 9-2 INTERNATIONAL TRADE IN AN EXPORTING COUNTRY. Once trade is allowed, the domestic price rises to equal the world price. The supply curve shows the quantity of steel produced domestically, and the demand curve shows the quantity consumed domestically. Exports from Isoland equal the difference between the domestic quan
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