00:01
So here we're talking about market dynamics in trade.
00:03
So the first thing we should do is properly draw a market.
00:07
It never hurts to try to visualize what's going on, right? a market has a downward sloping demand curve and an upward sloping supply curve.
00:17
And now we're told that there's a world price.
00:20
And that world price is below equilibrium.
00:26
So we know that equilibrium domestically is where these curves intersect.
00:30
If there was no trade, this would be the equilibrium price in the country, right? but there is some world price at which there's good trades in other countries, right? or world price.
00:42
So we are now thinking about what is going to happen as a response.
00:50
At the low price, the amount that demanders want to buy is here, right? they prefer to buy more at the lower price, while suppliers are not willing to produce and sell as much because there is a low world price, right? they used to get the equilibrium price, but in the presence of trade, they can only get the world price, so they'll cut back, right? so the results is that we import cheaply.
01:16
If goods are available from the rest of the world more cheaply than we can produce them ourselves, we are going to import them, right? because our domestic firms are not going to produce at that price.
01:27
As a consequence, consumer surplus, and is going to increase.
01:34
And to show that, let's think about what these things were before and after trade...