Copyright © 2011 Cengage Learning 9 Application: International Trade.

Copyright © 2011 Cengage Learning

99Application: International Trade

Figure 1 The Equilibrium without International Trade

Consumersurplus

Producersurplus

Priceof olive oil

0 Quantityof olive oil

Domesticsupply

Domesticdemand

Equilibriumprice

Equilibriumquantity


Figure 2 International Trade in an Exporting Country

Priceof olive oil

0Quantityof olive oil

Domesticsupply

Priceaftertrade World

price

DomesticdemandExports

Pricebeforetrade

Domesticquantity

demanded

Domesticquantitysupplied


Figure 3 How Free Trade Affects Welfare in an Exporting Country (1)

D

C

B

A

Priceof olive oil


DomesticsupplyPrice

aftertrade World

price

Domesticdemand

Exports

Pricebefore

trade

Producer surplusbefore trade

Consumer surplusbefore trade



Figure 3 How Free Trade Affects Welfare in an Exporting Country (2)


Figure 4 International Trade in an Importing Country

Priceof olive oil

0 Quantity

Priceafter

trade

Worldprice

of olive oil

Domesticsupply

Domesticdemand

Imports

Domesticquantitysupplied

Domesticquantity

demanded

Pricebeforetrade


Figure 5 How Free Trade Affects Welfare in an Importing Country (1)

C

B D

A

Priceof olive oil


Domesticsupply

Domesticdemand

Priceafter trade

Worldprice

Imports

Pricebefore trade

Producer surplusafter trade

Consumer surplusafter trade



Figure 5 How Free Trade Affects Welfare in an Importing Country (2)


Figure 6 The Effects of a Tariff (1)

Priceof olive oil


Domesticsupply

Domesticdemand

Pricewith tariff Tariff

Importswithout tariff

Equilibriumwithout trade

Pricewithout tariff

WorldpriceImports

with tariff

QSQS QD QD



Figure 6 The Effects of a Tariff (2)


Figure 7 The Effects of an Import Quota (1)

A

E'C

B

G

D E" F

Priceof olive oil


Domesticsupply

Domesticsupply

+Import supply

Domesticdemand

Isolandianprice with

quota

Importswithout quota

Equilibriumwith quota

Equilibriumwithout trade

Quota

Importswith quota

QD

Worldprice

Worldprice

Pricewithout

quota=

QS QDQS



Figure 7 The Effects of an Import Quota (2)


Copyright © 2011 Cengage Learning 9 Application: International Trade.

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