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International Trade

International Trade. Another CS/PS argument. Let’s look at what happens in the market for steel as we decide whether or not to participate in international trade. Step One: Compare our domestic equilibrium price to the world price of steel

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International Trade

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  1. International Trade Another CS/PS argument

  2. Let’s look at what happens in the market for steel as we decide whether or not to participate in international trade. • Step One: Compare our domestic equilibrium price to the world price of steel • World price = price of a good that prevails in the world market for that good International Trade

  3. Step One: Compare our domestic equilibrium price to the world price of steel • World price = price of a good that prevails in the world market for that good • If the world price is higher = we will export steel • If the world price is lower = we will import steel • We are essentially looking at comparative advantage! International Trade

  4. Let’s say we are exporting the good. Here’s our graph: International Trade

  5. Who is better off? Who is worse off? International Trade

  6. Who is better off? DOMESTIC PRODUCERS Who is worse off? DOMESTIC CONSUMERS International Trade

  7. What about the economy as a whole? International Trade

  8. What about the economy as a whole? BETTER OFF because producer surplus has increased more than consumer surplus decreased International Trade

  9. Let’s say we are importing the good. Here’s our graph: International Trade

  10. Who is better off? Who is worse off? International Trade

  11. Who is better off? DOMESTIC CONSUMERS Who is worse off? DOMESTIC PRODUCERS International Trade

  12. What about the economy as a whole? International Trade

  13. What about the economy as a whole? BETTER OFF because the gains to consumers outweigh the loss to producers. International Trade

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