3. Production possibilities for two countries Pre-trade exchange ratios Less developed country: 2 wheat for 1 cloth Developed country: 1 wheat for 2 cloth International trade exchange ratios Less developed country: 1 wheat for 1 cloth Developed country: 1 wheat for 1 cloth (LDC exports wheat: DC exports cloth)
4. Production possibilities for two countries Pre-trade exchange ratios Less developed country: 2 wheat for 1 cloth Developed country: 1 wheat for 2 cloth International trade exchange ratios Less developed country: 1 wheat for 1 cloth Developed country: 1 wheat for 1 cloth (LDC exports wheat: DC exports cloth)
5. Production possibilities for two countries Pre-trade exchange ratios Less developed country: 2 wheat for 1 cloth Developed country: 1 wheat for 2 cloth International trade exchange ratios Less developed country: 1 wheat for 1 cloth Developed country: 1 wheat for 1 cloth (LDC exports wheat: DC exports cloth)
6. Production possibilities for two countries Pre-trade exchange ratios Less developed country: 2 wheat for 1 cloth Developed country: 1 wheat for 2 cloth International trade exchange ratios Less developed country: 1 wheat for 1 cloth Developed country: 1 wheat for 1 cloth (LDC exports wheat: DC exports cloth)
7.
8.
9.
10.
11. The cost of protection O P Q S dom (= MC ) Q 1 Q 2 S world P W D dom
12. The cost of protection O P Q S dom (= MC ) S world + tariff S world a Q 1 Q 2 P W + t P W D dom Area edbc equals loss of consumer surplus d e c b Q 3 Q 4 Tariff
13. The cost of protection O P Q S dom (= MC ) S world + tariff S world a Q 1 Q 2 Q 3 Q 4 P W + t P W D dom Area 3 equals gain in tariff revenue Area 1 equals gain in producer surplus d e c b 1 2 3 4 Tariff
14. The cost of protection O P Q S dom (= MC ) S world + tariff S world a 1 2 3 4 Q 1 Q 2 Q 3 Q 4 P W + t P W D dom Areas 2 + 4 equals net loss d e c b Tariff
15.
16. Growth in world real GDP and world merchandise exports Source: Trade Statistics , WTO (www.wto.org)
17. Growth in world real GDP and world merchandise exports Growth in real GDP Source: Trade Statistics , WTO (www.wto.org)
18. Growth in world real GDP and world merchandise exports Growth in real GDP Growth in merchandise exports Source: Trade Statistics , WTO (www.wto.org)
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