International Trade

Refer to the gains from international trade that arise when countries specialise and trade according to their absolute or comparative advantage; may be in terms of increased output or increased consumer or producer surplus.

The absence of government intervention of any kind in international trade, so that trade takes place without any restrictions (or barriers) between individuals or firms in different countries.

Occurs when a firm or a country concentrates production on one or a few goods and services. In international trade theory, specialisation forms the basis for the gains from trade, arising when countries specialise according to their comparative advantage, and when firms specialize in production of goods and services that offer them economies of scale.

Government intervention in international tarde through the imposition of trade restrictions (or barriers) to prevent the free entry of imports into a country and protect the domestic economy from foreign competition.

Taxes on imported goods; they are the most common form of trade restriction. Tariffs may serve two purposes; to protect a domestic industry from foreign competition (a protective tariff); or to raise revenue for the government (a revenue tariff).

A type of trade protection that involves setting a legal limit to the quantity of a good that can be imported over a particular time period (typically a year).

A payment by the government to a producer or exporter per unit of the subsidised good, where the subsidy is paid for each unit of the good that is exported.

Trade protection measures taking the form of administrative procedures that countries may use to prevent the free flow of imports into a country; may include customs procedures involving inspections and valuation, controls on packaging, and others. Often considered to be a kind of 'hidden' trade protection.

Increased competition:

Graeter efficiency in production:

Lower prices for consumers:

Greater choice for consumers:

Acquiring needed resources:

Source of foreign exchange:

Access to larger markets:

Economies of scale in production:

Increases in domestic production and consumption as a result of specialisation:

More efficient allocation of resources:

Trade makes possible the flow of new ideas and technology:

Trade makes countries interdependent, reducing the possibility of hostilities and violence:

Trade as an engine for growth.

Winners:

• Domestic producers are better off.

• Domestic employment increases.

Neutral impact:

• The government neither gains nor loses.

Losers:

• Domestic consumers are worse off.

• Domestic income distribution worsens.

• Increased inefficiency in production:

• The exporting countries may be worse off or better off:

• Global misallocation of resources:

The total surplus lost is d,e,f.

Winners:

• Domestic producers.

• Domestic employment in the protected industry.

• Government.

Losers:

• Domestic consumers.

• Domestic income distribution.

• Increased inefficiency in production.

• Foreign producers.

• Global misallocation of resources.

welfare loss is equal to d,f

Winners:

• Domestic producers are better off.

• Domestic employment increases.

Neutral impact:

• Consumers are not affected.

Losers:

• The government budget.

• Taxpayers are worse off.

• Increased inefficiency in production.

• The exporting countries are worse off.

• A global misallocation of resources results.

Welfare loss is equal to area b.

Winners:

• Producers are better off.

• Domestic employment increases.

Losers:

• Consumers are worse off.

• Negative impact on the government budget.

• Taxpayers are worse off.

• Domestic income distribution worsens.

• Increased inefficiency in production.

• The exporting countries are worse off.

• There is an increase in the global misallocation of resources.

Welfare loss is equal to area b and d