International Trade and Public Policy
Introduced| English |
|---|
| world price/wɜːld praɪs/ |
| importer/ɪmˈpɔːtə/ |
| exporter/ekˈspɔːtə/ |
| autarky/ˈɔːtɑːki/ |
| free trade/friː treɪd/ |
| tariff/ˈtærɪf/ |
| deadweight loss/ˈdedweɪt lɒs/ |
| import quota/ɪmˈpɔːt ˈkwəʊtə/ |
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:
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.
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 ______.
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:
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:
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.
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.