a.s 3.2
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A.S 3.2. International Trade. International Trade. Involves buying and selling goods and services between nations Most trade occurs between firms operating in different countries. Some trade is between government agencies. International Trade. - PowerPoint PPT PresentationTRANSCRIPT
A.S 3.2
International Trade
International Trade• Involves buying and selling goods and services
between nations
• Most trade occurs between firms operating in different countries.
• Some trade is between government agencies
International Trade• Can you think of exports and imports NZ sells and
buys?
• Which countries do you think most of NZ’s trade occurs between?
• How much influence do you think NZ has on the price in the world market?
• http://business.newzealand.com/Economy/15264.aspx
International Trade• NZ is a price taker
– A price taker must accept or take the price that is set in the world market.
• Whether a good is imported or exported depends on where the World price is, in relation to the Domestic product.
• World price= the price at which a good or service is traded on international markets
• Domestic Price= The price at which a good or service is traded on home market.
HORIZONTAL WORLD SUPPLY CURVE
• New Zealand faces a perfectly elastic supply curve for imports set at the world price as the New Zealand market is so small in relation to the output from the world
• Therefore the overseas suppliers are able to supply as much as New Zealand can buy at the world market price
Exports• An export is a product consumed in one
country and sold to and consumed in another country.
• Reasons for exports occurring• The World price is higher than the domestic price
would be if there was no trade• The World provides a larger market than the
domestic market. • When these reasons occur, trade results in larger
revenues for firms than if trade didn’t occur.
New Zealand as a exporter
World Price
Exports
QD NZ
QS NZ
World Demand curve
New Zealand as a exporter
Amount of Exports
Imports
• An import is a product consumed by one country but produced in another country
• Reasons why imports occur• The world price is lower than what the domestic
price would be than if there was no trade• The importing country may not have the resources
to produce the imported product.• Imports enable the standard of living of a nation to
be greater than it would otherwise be.
New Zealand as an Importer
World Price
QDnzQSnz
Imports
World supply curve
New Zealand as an Importer
Trade and Allocative Efficiency
• Trade improves allocative efficiency• Shown by increased net welfare benefit
from both exporting and importing
• Protectionist policies result in a loss of allocative efficiency and dead weight loss
• Tariff is a type of protectionist policy. It is a tax on an imported good.
Trade and Allocative Efficiency - Tariffs
World price (Zero tariff)
QDnzQSnz
World Price (Tariff)
QDnz’QSnz’
a
c
QDnzQDnz’QSnz’
Trade and Allocative Efficiency - Tariffs
Consumer surplus
Imports
Tariff Revenue
Trade and Allocative Efficiency - Tariffs• Tariff on imports
• Increase the price• More government revenue• Reduce consumer surplus• Increase producer surplus• Create a dead weight loss• Create allocative inefficiency
• Domestic producers do benefit but consumers and the economy as a whole suffers a net loss
• Protectionist policies that restrict access of New Zealand exports
IMPORT QUOTA
Price
Quantity
Sd
Dd
P
Pquota
QUOTA
Qquota
An import quota will increase prices.
Reduce CS
Increase PS
Create allocative inefficiency
CS
PS
DWL