World price and Comparative advantage o If the country decides to engage in international trade, will it be an importer or exporter of steel? The effects of free trade can be shown by comparing the domestic price of a good without trade and the world price of the good. The world price refers to the prevailing price in the world markets a country will either be an exporter or an importer of the good
World Price and Comparative Advantage • If the country decides to engage in international trade, will it be an importer or exporter of steel? • The effects of free trade can be shown by comparing the domestic price of a good without trade and the world price of the good. The world price refers to the prevailing price in the world markets. • A country will either be an exporter or an importer of the good
World price and Comparative advantage o If a country has a comparative advantage then the domestic price will be below the world price, and the country will be an exporter of the good o If the country does not have a comparative advantage, then the domestic price will be higher than the world price, and the country will be an importer of the good
• If a country has a comparative advantage, then the domestic price will be below the world price, and the country will be an exporter of the good. • If the country does not have a comparative advantage, then the domestic price will be higher than the world price, and the country will be an importer of the good. World Price and Comparative Advantage
International Trade in an Exporting Country. Price of steel Domestic supply Price after World trade brice PI rice before……… trade Exports Domestic d eman 0 Domestic domestic Quanti quantit quantity of steel demanded supplied
Price of Steel 0 Quantity of Steel Domestic demand International Trade in an Exporting Country... Domestic supply World price Price after trade Exports Domestic quantity demanded Domestic quantity supplied Price before trade
How Free trade affects welfare in an Exporting Country. Price of steel Domestic supply Consumer surplus before trade A Price after World trade B brice PI rice before trade Producer surplus Domestic before trade d eman 0 Quanti of steel
Price of Steel 0 Quantity of Steel World price Domestic demand How Free Trade Affects Welfare in an Exporting Country... Domestic supply Price after trade Price before trade A Consumer surplus before trade B C Producer surplus before trade
How Free trade affects welfare in an Exporting Country. Price of steel Domestic Consumer surplus supply after trade A Exports Price after World trade B D brice PI ice before l………… trade Producer surplus after trade Domestic demand 0 Quanti of steel
Price of Steel 0 Quantity of Steel World price Domestic demand Domestic supply Price after trade Price before trade A Consumer surplus after trade C B Producer surplus after trade D Exports How Free Trade Affects Welfare in an Exporting Country