HAT Manifesto Part 1/3 - Rubric Cube - 241201 revision

 

(repost of section 7, added part at end starting with “When a country allows”)

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 3 Markets and Welfare

Chapter 9 of 36 Application: International Trade

Section 7 of 20

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Figure 3 - International Trade in an Importing Country

This shows the reverse case where Isoland’s domestic price of textiles is lower than the world price.

Once trade is allowed, the Isoland’s domestic price for textiles falls to equal the world price.

The domestic supply curve shows the amount produced domestically.

The domestic demand curve shows the amount consumed domestically.

Imports equal the difference between the domestic quantity demanded and the

domestic quantity supplied at the world price.

With trade

· domestic price decreases and domestic quantity consumed increases

· buyers are better off, consumer surplus rises from A to A + B + D

· sellers are worse off, producer surplus falls from B + C to C

· total surplus rises by area D, showing trade raises the economic well-being of the country as a whole

…

Suppose the domestic Isoland textiles price before trade is higher than the world price.

Figure 3 shows what happens when the Isoland domestic textile price is higher than the world price and Isoland begins international trade in textiles.

Once trade begins the Isoland price falls to equal the world price.

Since the Isoland domestic price is higher than the world price, Isoland becomes a textiles importer.

In Isoland

· producers of textiles must accept the lower world price

· no consumer, in Isoland nor any trading country, will pay more than the world price

After the Isoland textile price has dropped to equal the world price domestic quantity supplied is less than the domestic quantity demanded because demand has increased to include imports.

Although domestic quantity supplied and domestic quantity demanded differ the textile market is still in equilibrium because now there is another participant the market: the rest of the world.

…

When a country allows trade and becomes an importer of a good

· domestic consumers of the good are better off

· domestic producers of the good are worse off

Trade always raises the economic well-being of a nation, because the gains of the winners exceed the losses of the losers.

…

We can see from Figure 2 and Figure 3 when Isoland opens its textile market to international trade the change creates winners and losers regardless of whether Isoland becomes an exporter or importer of textiles.

In either case of exporting or importing, the gains of the winners exceed the losses of the losers.

Opening an economy to international trade is a policy that increases the size of the economic pie while leaving some participants in the economy with a smaller slice.

…

Because trade creates some losers, debate over trade policy is usually contentious.

Nations restrict trade because the losers from free trade, most often current domestic suppliers

· are better organized and focused than the consumer winners

· turn their organization and focus into political clout

· lobby for trade restrictions such as tariffs or import quotas

… …

producers and consumers

seisansha to shōhisha

生産者と消費者