International Trade Flashcards
What is a price taker?
A price taker is someone who is too small to influence the price. Able to import or export any quantity of goods at the world price because it is too small of a nation to affect the market price.
What happens after importing (trade) ?
NZ is able to buy all they want at the world price so p.w becomes he new price in NZ.
Price in NZ falls so…
Quantity demanded increases from Qe to Qd (NZ) and Quantity supplied falls from Qe to Qs(NZ).
Buyers buy more at a lower price and suppliers sell less at a lower price.
What happens to CS and PS after trade? (Importing)
And where does new CS come from?
CS has increased because the price of importing is lower and the quantity demanded has increased.
BUT PS decreased as price decreased and the quantity supplied has decreased.
Some PS is transferred to CS but some new CS is from overseas market.
Before and after exporting…
The NZ price increases as the world price is higher. This becomes the NZ price.
What happens after exporting (trade)?
NZ is able to buy all that they want at the world price. So PW become NZ price.
Price rises and so…
Quantity demanded decreases from Qe to Qd NZ
And quantity supplied increases from Qe to Qs NZ
What happens to CS and PS AFTER TRADE ( exporting)?
Where does new PS come from?
CA has decreased because the price is higher and quantity demanded decreased.
BUT PS increases as price increases and quantity supplied increases. They want to sell at a higher price but people don’t buy at a higher price.
New Ps come from over sea markets.
NO DWL
What does the Tarif on trade do?
The tariff will raise the world price (PW +tariff) tax is added onto imports entering the country.
Effect of tariff on quantity…
Quantity supplied by NZ will increase from Qnzs to Qnzs1. At a higher price the product is more profitable.
Quantity demanded will decrease because at a higher price the product is less affordable.
Imports will decrease from M to M1.
Tariff on CS…
CS decreases because price has increased. Quantity bought decreased.
Tariff on PS…
PS has increased because price has increased. And quantity supplied has increased.
What happens to allocative efficiency if the tariff is put on?
Reduces allocative efficiency. CS and ps are not maximised, there is a net welfare loss
