Session 2 The Basic Theory Using Demand and Supply.

Session 2

The Basic Theory Using Demand and Supply

Key Questions About International Trade

Which in each country, who are the gainers and losers from opening trade ?

How does trade effect production and consumption in each country ?

Which country gain from trade ?

Why do countries trade? More precisely, what determines which productsa country export and which products it import ?

Trade Usually Results from The Interaction of Competitive Demand and Supply.

Demand

Supply

What are the factors influencing the demand ?

What are the factors influencing the supply ?

Supply Demand

Demand

Demand

Demand

Supply

Supply

What will happenif the demandand supply are unmatched ?

Demand and Supply for Motorbikes

Consumer Surplus

Consumer SurplusProducer Surplus

Producer Surplus

The Market for Motorbikes:Demand and Supply

No-trade Equilibrium

Consumer Surplus

Producer Surplus

The Effects of Trade on Production, Consumption, and Price, Shown with Demand and Supply Curves

Pre-tradePrice

World Pricewith Trade

ImportsPre-trade Price

World Pricewith Trade

ExportsSf

Df

Sx

Dx

The Effects of Trade on Production, Consumption, and Price, Shown with Demand and Supply Curve

The Effects of Trade on Well-Being of Producers, Consumers, and the Nation as a Whole

Which one better ?

Key Concerned IssueRegarding Net Nation Gain

One dollar,one vote

The WelfareEffects

Which Country Gain More ?

Dx

Sx Sx = Represent

Exporting Country

Dx = Represent Importing Country

Consumer Surplus

Producer Surplus

Country Pre-trade Price

Free Trade Price

Price Change(percent)

U.S.(Importer)

2,000 1,000 100%

The Rest ofthe World(Exporter)

700 1,000 30%

Gain More

Importing Country (U.S.)

Take Some Disadvantages

Producers

Take Some AdvantagesConsumers

Exporting Country (The Rest of the Word)

Take Some Advantages

Producers

Take Some Disadvantages

Consumers

What if they are rich ?

What if they are rich ?

What if they are poor ?

What if they are poor ?