Changes in Welfare from Free Trade The Case of an Exporting Country Before trade After trade Change onsumer Surplus A+B B roducer Surplus B+C+D +(B+D) Total Surplus A+B+ C A+B+C+ D D The area d shows the increase in total surplus and represents the gains from trade Harcourt. Inc items and derived items c ht o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Changes in Welfare from Free Trade: The Case of an 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: o Domestic producers of the good are better off. and domestic consumers of the good are worse off. o Trade raises the economic well-being of the nation as a whole H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. How Free Trade Affects Welfare in an Exporting Country The analysis of an exporting country yields two conclusions: u Domestic producers of the good are better off, and domestic consumers of the good are worse off. u Trade raises the economic well-being of the nation as a whole
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. Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. 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
International trade and the Importing Country Domestic consumers will want to buy steel at the lower world price. Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. International Trade and the Importing Country Domestic consumers will want to buy steel at the lower world price
International trade and the Importing Country Domestic producers of steel will have to lower their output because the domestic price moves to the world price. Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. International Trade and the Importing Country Domestic producers of steel will have to lower their output because the domestic price moves to the world price