International Trade and Public Policy
Introduced| English | Meaning |
|---|---|
| world price/wɜːld praɪs/ | The price at which a good can be bought or sold in the international market in the model being considered. |
| importer/ɪmˈpɔːtə/ | A country that buys a good or service from producers in another country. |
| exporter/ekˈspɔːtə/ | A country that sells a good or service to buyers in another country. |
| autarky/ˈɔːtɑːki/ | A situation in which an economy does not trade with other economies. |
| free trade/friː treɪd/ | International exchange of goods and services without trade barriers such as tariffs or quotas. |
| tariff/ˈtærɪf/ | A tax imposed on imported goods. |
| deadweight loss/ˈdedweɪt lɒs/ | The loss of total economic surplus when a market produces an inefficient quantity. |
| import quota/ɪmˈpɔːt ˈkwəʊtə/ | A legal limit on the quantity imported. |
When a market opens to the world
- A country on its own trades at its domestic equilibrium price.
- Open the borders, and it can buy or sell at the world price 世界价格 instead.
- That single change reshuffles who gains and who loses at home.
- But for the country as a whole, trade makes the pie bigger.
Importer or exporter?
- Under autarky 自给自足 a country does not trade — its price is just the domestic equilibrium.
- If the world price is below the domestic price → the country becomes an importer 进口国.
- If the world price is above the domestic price → it becomes an exporter 出口国.
- Free trade 自由贸易 raises total surplus for the country, even though one side gains and the other loses.
Open up to world trade
When the world price is below the domestic price, a country imports; a tariff lifts the price back up, cutting imports and creating a deadweight loss.
A country opens to trade and the world price is below its domestic price. It becomes an:
Difficulty 1/5 · 100 coins + a small bonus on first completion today
At the lower world price, buyers want more than domestic sellers supply, so the rest is imported.
Free trade raises total surplus for a country, even though it helps one side and hurts the other.
Difficulty 1/5 · 100 coins + a small bonus on first completion today
The winners gain more than the losers lose, so total surplus rises.
A country that does not trade at all is in a state of ______.
Difficulty 1/5 · 100 coins + a small bonus on first completion today
Under autarky the price is simply the domestic equilibrium price.
Domestic steel costs 800 per tonne; the world price is 600. Opening to trade, the country:
Difficulty 1/5 · 100 coins + a small bonus on first completion today
World price (600) is below domestic (800), so the country imports; buyers pay less and consumer surplus rises.
Tariffs and quotas
- A tariff 关税 is a tax on imports. It raises the price, cuts the quantity traded, and creates a deadweight loss 无谓损失 — but earns the government revenue.
- An import quota 进口配额 is a legal limit on the quantity imported. It raises the price and causes a deadweight loss too, but the government earns no revenue.
- Both shrink total surplus below the free-trade level.
Compared with a tariff, an import quota that raises the price by the same amount:
Difficulty 1/5 · 100 coins + a small bonus on first completion today
A quota raises price like a tariff but the government collects no revenue — it goes to licence holders.
Should a country restrict trade?
- Arguments for restrictions: protect new "infant" industries, save domestic jobs, and national security.
- Arguments against: higher prices for consumers, protection of inefficient firms, and lower total surplus.
- Economists usually conclude that free trade is better for society overall.
Select all common arguments for trade restrictions.
Difficulty 2/5 · 140 coins + a small bonus on first completion today
Infant industry, jobs and security argue for restrictions; lower prices is an argument for free trade.
Opening to the world price makes a country an importer (world price lower) or exporter (world price higher); free trade raises total surplus. A tariff (tax, earns revenue) or quota (limit, no revenue) both raise price and create a deadweight loss.
Write from a world price 150 below domestic
- Domestic steel costs 500 per tonne. The world price is 350.
- Say whether the country imports or exports, and the price gap.
Domestic steel costs 500 per tonne and the world price is 350. Does the country import or export when it opens to trade, and what is the price gap?
500 minus 350 is 150, and the lower world price means imports.
What does opening to trade do?
Difficulty 1/5 · 100 coins + a small bonus on first completion today
350 is below 500, so the country imports and the gap is 150.