Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 3 Markets and Welfare
Chapter 9 of 36 Application: International Trade
Section 10 of 19
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The Isoland economics team used the most fundamental tools of analysis to arrive at their decision to recommend international trade
· supply and demand
· producer and consumer surplus
· deadweight losses caused by taxes
As always when evaluating the merits of international trade, their analysis shows
· there are winners and losers when a nation opens itself up to trade
· the winners’ gains exceed the losers’ losses
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There are other benefits of trade beyond maximized economy efficiency and surplus, including:
-Increased variety of goods, goods produced in various countries differ.
-Lower costs from economies of scale.
Some goods can be produced at low cost only if produced in large quantities.
A firm in a small country cannot realize economies of scale if it can sell only in a small domestic market, but it can if it sells around the world.
-Increased competition.
A company without foreign competitors likely has domestic market power.
This allows it to raise prices above competitive levels.
-Enhanced flow of ideas and technologies.
Dissemination of technological advances around the world is largely caused by the trading of advanced goods.
Potential producers of computers in various countries learn about manufacture of computers not by starting from scratch but by buying and studying computers from firms in countries that already make them.
… …
starting from scratch
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