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Tutorial Session (6) Application On International Trade: (Page 171-191)

This document provides an overview of international trade concepts including imports, exports, consumer surplus, producer surplus, and the impact of tariffs. It discusses two cases: 1) When the world price is greater than the domestic price, the country will export its excess supply. This increases producer and total surplus. 2) When the world price is less, the country will import to meet excess demand. This increases consumer and total surplus. The imposition of a tariff reduces total surplus, representing deadweight loss, as it lowers imports from Qs1-Qd1 to Qs2-Qd2.

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44 views4 pages

Tutorial Session (6) Application On International Trade: (Page 171-191)

This document provides an overview of international trade concepts including imports, exports, consumer surplus, producer surplus, and the impact of tariffs. It discusses two cases: 1) When the world price is greater than the domestic price, the country will export its excess supply. This increases producer and total surplus. 2) When the world price is less, the country will import to meet excess demand. This increases consumer and total surplus. The imposition of a tariff reduces total surplus, representing deadweight loss, as it lowers imports from Qs1-Qd1 to Qs2-Qd2.

Uploaded by

EATalha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Tutorial Session (6)

Application on International Trade


(Page 171-191)

1- International trade and its application on demand and


supply
World price domestic price exports imports
Supply is the amount produced domestically, and demand is the amount consumed
domestically.
Imports and exports equal the quantity supplied minus the quantity demanded
Imp and exp = Qs-Qd
If the quantity supplied is greater than the quantity demanded (Qs>Qd) , the
country has excess supply and the it will export .
If the quantity supplied is less than the quantity demanded (Qs<Qd), the
country has excess demand and it will import.

THE FIRST CASE: if the world price is greater than the domestic price.
(Exporting country)
before trade
after trade change
Consumer surplus
A+B
A
(B)Producer surplus
C
B+C+D (B+D)Total surplus
A+B+C
A+B+C+D (D)+
The area D shows the increase in producer surplus and total surplus and
represents the gain from trade

Consumer and producer surplus


before and after trade
Supply
A

World price
B

Domestic price(P*)
C

Demand

Q2

Q*

Qs

In this case the Qs >Qd, so the country take the advantage of the excess supply
to export.

THE SECOND CASE: if the world price is less than the domestic price
(Importing Country)
before trade
after trade change
Consumer surplus
A
A+B+D (B+D)Producer surplus
B+C
C
(B)Total surplus
A+B+C
A+B+C+D (D)+
The area D shows the increase in the consumer surplus and total surplus, and
represents the gain from trade.

Consumer and producer surplus


before and after trade
Supply

- Qs: is the quantity


produced domestically

- Qd: is the quantity


consumed domestically

Domestic price(P*)
B

D D

World price
C
Demand

Qs

Q*

Qd

The Effect of Tariff


Tariff is a tax on goods produced abroad and sold domestically
before tariff
after tariff
change
Consumer surplus
A+B+C+D+E+F
A+B
(C+D+E+F)Producer surplus
G
C+G
C+
Government Revenue
NONE
E
E+
Total surplus
A+B+C+D+E+F +G A+B+C+E+G
(D+F)The area D+F shows the fall in total surplus and represents the deadweight loss of
the tariff

The effect of tariff on Demand and


Supply

- Qs1-Qd1= import with out tariff


- Qs2-Qd2= import with tariff

Domestic
demand

Price with tariff


C
Price without tariff

Import
with tariff
Qs1

Qs2

Domestic
supply
Qd2

Qd1

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