Chapter 9 Notes

. Producer surplus changes by: +C.c. License-holder surplus changes by: +(E' + E").d. Total surplus changes by: -(D + F).F. The Lessons for Trade Policy1. If trade is allowed, the price of steel will be driven to the world price. Ifthe domestic price is higher than the world price, the country will importand the domestic price will fall. If the domestic price is lower than theworld price, the country will export and the domestic price will rise.2. If a country imports a product, domestic producers are made worse off,domestic consumers are made better off, and the gains of consumersoutweigh the losses of producers. If a country exports a product,domestic producers are made better off, domestic consumers are madeworse off, and the gains of producers outweigh the losses of consumers.3. Both a tariff and an import quota would create a deadweight lossbecause total surplus would fall.G. FYI: Other Benefits of International Trade1. In addition to increasing total surplus, there are several other benefits offree trade.2. These include an increased variety of goods, lower costs througheconomies of scale, increased competition, and an enhanced flow ofideas.III.The Arguments for Restricting TradeA. The Jobs Argument1. If a country imports a product, domestic producers of the product willhave to lay off workers because they will decrease domestic output whenthe price decreases to the world price.2. Free trade, however, will create job opportunities in other industrieswhere the country enjoys a comparative advantage.B. The National-Security Argument1. Certain industries may produce key resources needed to produceproducts necessary for national security.2. Much of the time that this argument is used, however, the role of themarket in providing national security is exaggerated.C. The Infant-Industry Argument