Trade and WelfarePowerPoint PresentationSlide 3Slide 4Slide 5The next (hidden) slide shows in a dynamic way who gains from trade when the world price is below the domestic, no trade price.Slide 8Slide 9Slide 10The next (hidden) slide shows in a dynamic way who gains from trade when the world price is above the domestic, no trade price.Summary and conclusionsArguments against free tradeArguments against tradeTrade and welfare slide 1Trade and WelfareTrade and WelfareIn this section, we examine the effects on welfare of international trade.The approach taken here is to use the devices of Producer and Consumer Surplus.The change in social welfare when trade is allowed can be measured by the changes in producer and consumer surplus.Trade and welfare slide 2SDQPQ*P* = $10The diagram below shows the U.S. domestic market for wine. No trade is taking place. WINE MARKETTrade and welfare slide 3In the case of wine, let's suppose the world price is lower than the U.S no-trade price, say, $8.00 per bottle.Trade and welfare slide 4SDQPQ*P* = $10What happens with trade?What are the welfare effects of trade? WINE MARKETP* = $8Q"Q'Trade and welfare slide 5SDQPP* = $10U.S. consumers gain b + d.U.S. producers lose b.Welfare rises by d.WINE MARKETP* = $8Q"Q'dcbaThe next (hidden) slide shows in a dynamic way who gains from trade when the world price is below the domestic, no trade price.Hidden slideTrade and welfare slide 8SDQPQ*P* = $1500The diagram below shows the U.S. domestic market for computers. No trade is taking place. COMPUTER MARKETTrade and welfare slide 9Suppose computers can be sold for $2000 each on the world market and trade is allowed.What happens with trade?What are the welfare effects of trade?Trade and welfare slide 10SDQPQ*P* = $1500U.S. consumers lose b.U.S. producers gain b + d.Welfare rises by d.COMPUTER MARKETP* = $2000abcdThe next (hidden) slide shows in a dynamic way who gains from trade when the world price is above the domestic, no trade price.Hidden slideTrade and welfare slide 13Summary and conclusionsAllowing trade in a good will always increase social welfare (the sum of producer and consumer surplus).When a good is exported, suppliers gain and consumers lose, compared to the no trade position.When a good is imported, suppliers lose and consumers gain, compared to the no trade position.Trade and welfare slide 14Arguments against free tradeTrade always increases welfare of an economy, so long as welfare is measured by the sum of producer and consumer surplus.What, then, are the arguments against free trade?Trade and welfare slide 15Arguments against trade1) Jobs argument.2) National defense argument.3) Infant industry argument.4) Unfair competition
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