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Analyzing Trade with Supply and Demand
The Costs of Protectionism
Arguments Against International Trade
Takeaway
Economics textbooks should never have chapters on “international trade.” The word “international” suggests that international trade is a special type of trade requiring new principles and arguments. But when Joe and Frank trade, Joe and Frank are made better off. When Joe and Francisco trade, Joe and Francisco are made better off. The politics are different but the economics doesn’t change much if Frank lives in El Paso and Francisco lives in Ciudad Juarez. International trade is trade.
In Chapter 2, we discussed the “big picture” view of trade and why trade is generally beneficial. To recap:
Trade makes people better off when preferences differ.
Trade increases productivity through specialization and the division of knowledge.
Trade increases productivity through comparative advantage.
All of these reasons hold for trade between nations as well as trade within nations. What is different in this chapter is that we will focus our analysis on a single market. Using the tools of supply and demand, we will discuss the prices at which trade occurs and how trade in a single market affects consumers and producers in that market. We will also show how to analyze restrictions on trade, such as tariffs and quotas. We close by evaluating some of the arguments, both economic and political, against international trade.