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Understanding International Trade Dynamics

The document discusses international trade and trade policies. It begins by showing the equilibrium of prices and quantities without trade between countries. It then explains how comparative advantage and world prices determine whether a country exports or imports. Graphs demonstrate how trade affects prices and quantities in exporting and importing countries. Trade policies like tariffs and import quotas increase domestic prices and decrease imports and consumer surplus. The limitations of free trade are also briefly outlined, such as protecting domestic industries and national security concerns.

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ErwinSuhendar
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4 views11 pages

Understanding International Trade Dynamics

The document discusses international trade and trade policies. It begins by showing the equilibrium of prices and quantities without trade between countries. It then explains how comparative advantage and world prices determine whether a country exports or imports. Graphs demonstrate how trade affects prices and quantities in exporting and importing countries. Trade policies like tariffs and import quotas increase domestic prices and decrease imports and consumer surplus. The limitations of free trade are also briefly outlined, such as protecting domestic industries and national security concerns.

Uploaded by

ErwinSuhendar
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

International Trade

Rini Novrianti Sutardjo Tui

Equilibrium without Trading


Price

Consumer surplus

Domestic supply

Price of
equilibrium

Producer surplus

Equilibrium quantity

Domestic demand
Quantity

Trade Determinant
Profit

Comparative

World price is
the price applied in
world market.

Domestic
price is

opportunity cost in
producing.

Exporting Country
Price

Domestic supply

A
Price after
trading
Price before
trading

World price

B
C

Export
Domestic
demand

Domestic
supply

Domestic demand
Quantity

Importing Country
Price

Domestic supply

A
Price before
trading
Price after
trading

D
World price

Domestic demand

Import
Domestic
supply

Domestic
demand

Quantity

Trade Policies

Fare on
imported goods
decreases import
quantity, increases
domestic price,
decreases consumer
surplus.

Import quota
decreases import
quantity, increases
domestic price,
decreases consumer
surplus.

Impact of Applying Fare on Import


Price

Domestic supply

A
B

Price with
fare
Price
without
fare

Equilibrium without trading

Fare

World price
Domestic demand

G
Import with fare

S
1

S
2

D
2

Import without fare

Quantity
S
1

Impact on Applying Import Quota


Price

Domestic supply
Equilibrium without quota

Quota

Domestic demand
+
Domestic import

A
Domestic price
with quota
World price =
price without
quota

B
C

Equilibrium with quota

E F

World price
Domestic demand

G
Import with quota

S
1

S
2

D
2

Import without quota

Quantity
D
1

Impact on Applying Export Quota


Price

Domestic supply
Export
Domestic supply
Quota

World price =
price without
quota
Domestic price
with quota

A
B

D
E

Export with quota

Domestic demand
D
1

D
2

Q Q

Quantity
S
1

Q2S Q

Export without quota

Limitation of Trading
Arguments
Labour

Protection as
bargaining
power

National
security

Limitation of Trading
Small
industry

Unfair
competition

Mineral Economics

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