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Chapter 2 Basic theory Using Supply and Demand.
Producer and Consumer Surplus
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World Exports, 2005. p. 20
Exports Plus Imports/GDP p. 21
Chapter 2. Basic theory, using Supply and
Demand
Producer and Consumer Surplus.
Basic supply and demand curves for
exports, imports.
World
Exports,
2009. p. 20
Volume of
World Trade
and Output.
P. 23
Exports Plus Imports/GDP p. 21
Trade is more important for some
countries than others.
Someplace in this chapter he notes that
half of world trade is among DCs.
Volume of World Trade and Output. P. 21
Defines (page 19) consumer surplus: the increase in the economic well
being for consumers who are able to buy the product at a market price lower
than the maximum they are willing to pay.
Defines (page 23) producer surplus: the increase in the economic wellbeing of producers who are able to sell the product at a market price higher
than the lowest price at which they would have produced.
Figure 2.2 page 22
The market for bikes
Total domestic supply
and demand.
Producer surplus is h
Consumer surplus is c
Figure 2.2 page 24. Producer and
consumer surplus (national market for
bikes)
Producer surplus is h, consumer is c
Engaging in production and exchange
results in a total increase in welfare of c +h
2
Figure 2.3 Page 23
Effects of trade on production, consumption and price
Figure 2.3 page 25. Effects of trade on
production, consumption, etc., using
supply and demand.
Sx is rest of world’s supply of exports.
Dm is U.S. demand for imports
Doesn’t seem to use the terms excess
supply and excess demand.
Comments:
Distributional effects.
No inclusion of effects that would result from the assumption of
full employment.
Magnitude of effects depends on slopes of curves.
Can do effect on world prices, exports, production etc. of change in
population, or change in technology. Import substitution
Figure 2.4 page 25
Effects of trade on well-being of producers, consumers, nation
Figure 2.4 page 28. Effects of trade on wellbeing of producers, consumers, nation.
US consumer surplus increases, producer’s
decreases, net effect =b+d
RoW: consumer lose, producers gain, net
effect is n. World impact is the sum of both.
Arbitrage: buying something in one market, selling it in another to
profit from the price difference.
Mentions elasticity frequently. Price elasticity of demand: %
change in quantity demanded from a 1% change in price.
Doesn’t really use it.
No good reason for splitting U.S. impact into b+d, but only “n” for
R.o.W.
In principle, “b+d+n” can be measured.
Not determined which country gains more. Division depends on
How much price changes.
Comments (page 28) that the evaluation of gains uses the “onedollar, one-vote metric.” Importantly, this ignores distributional
issues. This is a static story. No Full Employment.
Limits of free trade price, from graph.
Relate to what determines comp. advantage/direction of trade.