Changes in Welfare from Free Trade: 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 The area D shows the increase in total surplus and represents the gains from trade
Changes in Welfare from Free Trade: Exporting Country The area D shows the increase in total surplus and represents the gains from trade. 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
How Free trade affects welfare in an Exporting country. The analysis of an exporting country yields two conclusions: Domestic producers of the good are better off, and domestic consumers of the good are worse off Trade raises the economic well-being of the nation as a whole
The analysis of an exporting country yields two conclusions: • Domestic producers of the good are better off, and domestic consumers of the good are worse off. • Trade raises the economic well-being of the nation as a whole. How Free Trade Affects Welfare in an Exporting Country
International Trade and the Importing Country If the world price of steel is lower than the domestic price the country will be an importer of steel when trade is permitted Domestic consumers will want to buy steel at the lower world price o Domestic producers of steel will have to lower their output because the domestic price moves to the world price
International Trade and the Importing Country • If the world price of steel is lower than the domestic price, the country will be an importer of steel when trade is permitted. • Domestic consumers will want to buy steel at the lower world price. • Domestic producers of steel will have to lower their output because the domestic price moves to the world price
International Trade and the Importing Country Price of steel Domestic su ppI Price before 0adu8dn00nD0nnBUEDDU trade Price after World trade Price Imports Domestic atman d Domestic Domestic Quantity quantity quantity of steel suI plied demanded ppi
Price of Steel 0 Quantity of Steel Domestic supply Domestic demand World Price Price after trade Domestic quantity supplied Domestic quantity demanded Price before trade Imports International Trade and the Importing Country