T1 Free Trade Protection 2 PPT Flashcards
What is a closed market?
A market where a country does not trade with the outside world.
What is an open market?
A market where a country trades with other nations, importing and exporting goods.
Why do countries export goods?
They have a comparative advantage and can produce the good at a lower opportunity cost.
Where is domestic price when a country exports?
💡 It is lower than the world price.
Why do exporters benefit from trade?
They can sell goods at a higher world price than the domestic price.
Why do countries import goods? + refer to comparative advantage
They do not have a comparative advantage in producing that good.
What happens to domestic price when a country imports?
It is higher than the world price.
Why do consumers benefit from imports?
They can buy goods at a cheaper world price.
Why is trade beneficial?
It increases economic welfare (Total Surplus).
How is Total Surplus (TS) calculated?
TS = Consumer Surplus (CS) + Producer Surplus (PS) - Deadweight Loss (DWL)
Who benefits more from exports?
Producers gain more than consumers.
Who benefits more from imports?
Consumers gain more than producers.
What does maximising Total Surplus mean?
Resources are allocated efficiently, increasing economic welfare.
