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When the United States eliminates trade barriers in one area, consumers spend the money they save on that product elsewhere in the economy—so there is no overall loss of jobs for the economy as a whole. Of course, workers in some of the poorest countries of the world who would otherwise have jobs producing textiles, would gain considerably if the United States reduced its barriers to trade in textiles. That said, there are good reasons to be wary about reducing barriers to trade. The 2012 and 2013 Bangladeshi fires in textile factories, which resulted in a horrific loss of life, present complications that our simplified analysis in the chapter will not capture.

Realizing the compromises between nations that come about due to trade policy, many countries came together in 1947 to form the General Agreement on Tariffs and Trade (GATT). (We’ll cover the GATT in more detail later in the chapter.) This agreement has since been superseded by the World Trade Organization (WTO)    , whose membership includes about 150 nations and most of the economies of the world. It is the primary international mechanism through which nations negotiate their trade rules—including rules about tariffs, quotas, and nontariff barriers. The next section examines the results of such protectionism and develops a simple model to show the impact of trade policy.

Demand and supply analysis of protectionism

To the non-economist, restricting imports may appear to be nothing more than taking sales from foreign producers and giving them to domestic producers. Other factors are at work, however, because firms do not operate in a vacuum. Instead, firms sell their products either to consumers or to other firms (if they are business suppliers), who are also affected by the trade barriers. A demand and supply analysis of protectionism shows that it is not just a matter of domestic gains and foreign losses, but a policy that imposes substantial domestic costs as well.

Consider two countries, Brazil and the United States, who produce sugar. Each country has a domestic supply and demand for sugar, as detailed in [link] and illustrated in [link] . In Brazil, without trade, the equilibrium    price of sugar is 12 cents per pound and the equilibrium output is 30 tons. When there is no trade in the United States, the equilibrium price of sugar is 24 cents per pound and the equilibrium quantity is 80 tons. These equilibrium points are labeled with the point E.

The sugar trade between brazil and the united states

This is a two-panel demand and supply graph, with quantity of sugar on the x-axis and price of sugar measured in cents per pound on the y-axis. The price-quantity pairs are plotted using the numbers from Table 34_01. The graph shows three sets of price outcomes in each country: no trade, free trade, and price with partial protectionism. The no-trade price in Brazil is lower than in the United States. Hence, when countries can engage in trade, the free-trade price will rise in Brazil and decrease in the United States.
Before trade, the equilibrium price of sugar in Brazil is 12 cents a pound and for 24 cents per pound in the United States. When trade is allowed, businesses will buy cheap sugar in Brazil and sell it in the United States. This will result in higher prices in Brazil and lower prices in the United States. Ignoring transaction costs, prices should converge to 16 cents per pound, with Brazil exporting 15 tons of sugar and the United States importing 15 tons of sugar. If trade is only partly open between the countries, it will lead to an outcome between the free-trade and no-trade possibilities.

Questions & Answers

what is j curve
Pervaiz Reply
distinguish between microeconomics and macroeconomics
Yash Reply
Microeconomics is just study about a small market or can say as single market. While Macroeconomics is study of the entire economy of country or the whole market. Example: Sales of Toyota Vios is consider as Microeconomics which is under the work of Microeconomist.
LOO
But if you wanna to know about the entire sales market of Toyota car series then it belongs to Macroeconomics and it will be the work of Macroeconomist
LOO
Micro studies the behavior of individuals and Firm in making decisions regarding the allocation of Scarce resources & the interactions among these individuals and firms. while macro is the study of the sum total of economic activity, dealing with the issues of growth & inflation & unemployment
sourabh
can anyone tell me what is deadweight loss.....
Pervaiz
Micro deals from individual point of view and their day to day economy problem whole macro deals with the economic problems of nations as a whole
Ankita
what is economy ?
Pandit Reply
what is market failure
Parey Reply
the market which does not fulfill the Peroto optimum criteria is called market failure. That means some is better without making no one can worse up.
dilleswar
what is peroto optimum
Pandit
Why globalisation an free trade is important
Fredrick Reply
First i vll tell u what is Globalisation Glosbalisation means to integrate your economy with the economy of the other countries Thus we can say there should b free trade b/w countries there shouldt not any restriction on trade so that when u go for trade then integrate yr economy with the rest of
Pervaiz
of world that described u ave globalised yr economy but it is possible only in free trade ....so that it is important
Pervaiz
monopoly or monopolistic is known as 'price maker'
Rossi Reply
same
Dina
what is elasticity
Helna Reply
measures responsiveness the quantity of demand for change in the price
Dina
a degree in which consumer's changes their demand or amount supplied in responce to changes in income or prices
Felix
is the concept which indicate the degree of responsiveness of quantity demanded to a small change in price of goods,income or price of another goods.
MUNIRUDEEN
what is a trade off
Charity
a balance achieved between two desirable but incompatible features; a compromise.
Wahaj
wow sorry question... fish not bull bear fish
muthatfucking
flexiblity in demand and price
Avinash
what is demand
Mouni Reply
what is dead weight loss
Sharee Reply
a reduction in consumers’ surplus caused by a fall in quantities of a product produced, especially when a monopoly producer keeps production low to maintain high prices
Wahaj
society welfare loss:the loss of total societal welfare(consumer & producer surplus) when a market is producing at a level of output which is not socially optimal...May arise from a market failure orfrom when there is intervention of government in efficient market
Pervaiz
what is the difference between capitalism and socialism
Helna Reply
captalism ,market dominated economy socialism,goverment domineted economy
Avinash
what is the difference between positive economics and normative economics
Ritesh Reply
positive economics is not the value judgement but normative economics is known as the value judgement.
dilleswar
positive economics only describes the economic phenomenon as it is. normative economics, beside describing phenomenon also suggest a solution to it
Ariel
is there only one difference between positive and normative economics
Ritesh
that's the most important difference.
Ariel
what is economics
Ritesh Reply
is the study of allocative scarce resources to meet human unlimited want
Helna
other definition of economics
Ritesh
economic is the knowledge which concerned with the wealth and consumption of goods and services
Iqbal
Study of all kinds of economic activities people involve in a particular society n time
ANIL
how can we define a demand
Mouni
A good or something we really want and need
Enrico
economics simple defination is =needs+wants>resources
Felix
demand is consumer willingness to pay a price for a specific good or services
Felix
Thnx
Enrico
It is the science of scarcity the want are unlimited and resources are limited which are in alternative uses
Zaid
Demand is the desire to own anything, the willingness to pay for it and the ability to buy it
Victoria
explain the relationship between individual supply and market supply
Helna
what is positive economics
Sarita Reply
The consumer and producer are getting equal satisfaction i.e called positive economics.
Abhimanyu
Positive economics seeks to describe and predict measurable, economic phenomena. Normative economics seeks to identify what economies ought to be like.
David
so what is life like
Raymone Reply
life is a long story about how you die
Binay
Life is all about impact, influence and contributions u make when living
zacheaus
It's about how you use yourself as a resources to fulfill your goals, needs etc
ANIL
what is a law of demand?
Lydia Reply
its the relationship between price and quantity demanded, they are related conversely. As the price of a good increases, the quantity demanded will decrease and as price decreases the quantity demanded increases (all other factors remaining constant).
Ligia
thank you Ligia I know understand.
Lydia
A demand curve shows the relationship between the price and the quantity demanded... how about the supply curve?
Lydia
Also shows the relationship between price and quantity supply... At higher price, quantity supply increases and vice versa... All other things being equal.
gotah
It's shows an in inverse relationship between the price n quantity demand made by individual in a given period of time
ANIL

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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