ECON 20 Lecture Notes - Lecture 28: Protectionism, Winners & Losers, Deadweight Loss

• School: Irvine Valley College
• Department: Economics
• Course: ECON 20
• Professor: mcneil

Document Summary

Whilst, international trade can benefit the country as a whole, there are winners and losers. Take this example of domestic producers losing out to more competitive foreign imports [3] this diagram shows the price of tyres measured relative to the price of another good. If closed economy equilibrium = point e (quantity = q) Relevant price of tyres is the world price, perfectly elastic supply. At the world price, qd qs needs to be imported. Comparative disadvantage (fig. 1 on the left below)[5] Consumers surplus increases by the purple + green areas. Producer surplus decreases by the purple area. Comparative advantage (fig. 2 on the right below)[6] Consumer surplus decreases by the purple area. Producer surplus increases by the purple + green areas. Wages increase reflecting the higher relative price. Total economic surplus increases in both cases (efficiency) Protectionism is the use of policies that are intended to protect domestic industries from foreign competition.