Chapter Two The Basic Theory Using Demand and Supply ???????? - PowerPoint PPT Presentation

Loading...

PPT – Chapter Two The Basic Theory Using Demand and Supply ???????? PowerPoint presentation | free to view - id: 5d7f79-N2M3Z



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

Chapter Two The Basic Theory Using Demand and Supply ????????

Description:

Chapter Two The Basic Theory Using Demand and Supply 2.1 Introduction Objective To analyze free trade equilibrium and gains from trade. – PowerPoint PPT presentation

Number of Views:31
Avg rating:3.0/5.0
Slides: 39
Provided by: HP899
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Chapter Two The Basic Theory Using Demand and Supply ????????


1
Chapter TwoThe Basic Theory Using Demand and
Supply????????
2
2.1 Introduction
  • Objective
  • To analyze free trade equilibrium and gains
    from trade.

3
Contents
  • Demand and supply curves
  • Consumer and producer surplus
  • No-trade (Autarky) equilibrium
  • Free trade equilibrium
  • Effects of free trade

4
2.2 Four Questions about Trade
  1. Why do countries trade? What determines the
    pattern of trade ?
  2. How does trade affect each countrys production
    and consumption?
  3. How does trade affect the economic well-being of
    each country?
  4. How does trade affect the distribution of income
    among various groups within each country?

5
2.3 Demand and Supply
  • Demand Curve
  • The relationship between the price charged
    and the quantity of a good demanded.
  • For a normal good, demand declines when price
    rises.

6
(No Transcript)
7
2.3 Demand and Supply
  • Price elasticity of demand
  • Change in quantity demanded ()
  • e-
  • Change in price ()
  • If egt 1, demand is elastic
  • If elt 1, demand is inelastic.

8
2.3 Demand and Supply
  • Consumer Surplus
  • ?????
  • Consumer well-being from the difference
    between the value of a good and the price paid
    for it.

9
At 2000/unit Total value (V) ctu Total
payment (P) tu Consumer surplus V - P c At
1000/unit ?
10
2.3 Demand and Supply
  • Supply Curve
  • The relationship between the price charged
    and the quantity of a good supplied.

11
Upward sloping Increasing marginal cost ??????
12
2.3 Demand and Supply
  • Price elasticity of supply
  • Change in quantity supplied ()
  • e
  • Change in price ()
  • If egt 1, supply is elastic
  • If elt 1, supply is inelastic.

13
2.3 Demand and Supply
  • Producer Surplus
  • ?????
  • Producer well-being from the difference
    between the revenue received and the cost
    incurred.

14
At 1000/unit Total Revenue (R) ez Total Cost
(C) z Producer surplus R - C e
At 2000/unit ?
15
2.4 No-trade Equilibrium
National supply National Demand
16
Consumer surplus c Producer surplus h ch ?
17
2.5 Free Trade Equilibrium
  • A two-country world
  • Home country USA
  • Foreign country
  • The rest of the world

18
No-trade Equilibrium A
19
No-trade equilibrium H
20
2.5 Free Trade Equilibrium
  • Price Change and Trade
  • Rest of the world Exporter
  • Price
  • Production Consumption
  • Export Production - Consumption

21
(No Transcript)
22
2.5 Free Trade Equilibrium
  • Price Change and Trade
  • USA Importer
  • Price
  • Production Consumption
  • Import Consumption - Production

23
(No Transcript)
24
  • Free Trade Equilibrium

Foreign Exports US Imports
25
(No Transcript)
26
  • Free Trade Equilibrium
  • Foreign Exports
  • US Imports
  • 50 thousand units
  • Price 1000/unit

27
(No Transcript)
28
  • Free Trade Equilibrium

What if world price is above or below 1000/unit ?
29
Free Trade Equilibrium
800
Gap
30
2.6 Effects of Free Trade
  • Effects in the importing country
  • Effects on consumers
  • Effects on producers
  • Effects on the whole country

31
Producer surplus - a Consumer surplus (abd
) Net national gains bd
One dollar, one vote metric
32
2.6 Effects of Free Trade
  • Effects in the exporting country
  • Effects on consumers
  • Effects on producers
  • Effects on the whole country

33
Producer surplus (jkn) Consumer surplus -
(jk) Net national gains n
34
2.6 Effects of Free Trade
  • Which country gains more?
  • Both countries gain from free trade, but the
    gains may be unequal.

35
Which country gains more?
36
Comparing (bd) and n
The side with less elastic trade curve gains
more.
n exporters surplus bd importers surplus
37
2.7 Summary
  • A product will be exported from countries where
    its price was lower without trade to countries
    where its price was higher.
  • Trade affects production and consumption in both
    countries. In the exporting country, production
    rises while consumption falls. The opposite is
    true for the importing country.

38
Summary
  • Both countries gain from free trade. The country
    with a less elastic trade curve or a larger price
    change gains more.
  • Within the trading countries, gainers are
    producers of exportable products and consumers of
    imported products losers are producers of
    import-competing products and consumers of
    exportable products.
About PowerShow.com