ECON 101 Lecture Notes - Lecture 29: Market Power, International Trade, Comparative Advantage
Document Summary
Autarky economy does not engage in international trade. Small open economy participates in international markets, but its production or consumption is small enough compared to the rest of the world that its supply or demand does not affect the world price. A country will export if world price is higher than domestic price. (suppliers can sell at a higher price). Because the country has a comparative advantage in producing the good. Here, the price of a good has increased, meaning that demand decreases and supply increases. This produces excess supply which can be exported overseas. Trade is beneficial and this can be seen through the increase in total surplus: Consumers are losers: their surplus moves from a + b + c to just a. Domestic producers are winners: they produce more quantity at a higher price, so their surplus increase by e + f to b + c + d + e + f.
