1. INTRO
   1. X vs M
      1. Import
         1. bought domestically
            1. produced overseas
      2. Export
         1. produced domestically
            1. sell overseas
      3. An Open E
         1. exports a large proportion of its output
         2. has few barriers to trade
      4. OPENNESS
         1. X, or M, divided by GDP (%)
      5. tariff
         1. tax imposed on M
      6. PRODUCTION POSSIBILITY FRONTIER
2. THE BASIS of TRADE
   1. ABSOLUTE ADVANTAGE
      1. the ability of an individual, firm or country
         1. produce more GnS than competitors
         2. SAME AMOUNT of Rs
   2. COMPARATIVE ADVANTAGE
      1. DEF
         1. the ability of an individual, firm or country
            1. produce GnS at a lower OC than competitors
      2. EXPLAINATION
         1. COUNTRIES are better off if they
            1. specialise in producing GnS they have a comparative advantage
            2. X them
            3. other countries have a comparative advantage
            4. M GnS
      3. SOURCES
         1. Climatic influences
            1. natural Rs
         2. Relative abundance of labour and capital
         3. Technology
         4. EOS
            1. expand in the production scale
            2. reductions input costs
         5. Rs endowments
3. GAIN from TRADE
   1. AUTARKY
      1. closed-economies
         1. self-sufficient
      2. The initial equilibrium of an E
         1. WITHOUT trade
      3. MUST BE THE SAME AS THE POINT OF CONSUMPTION
   2. TERM of TRADE
      1. The ratio at which a country can trade its exports for imports from other countries.
   3. FREE TRADE
      1. DEF
         1. a situation GOVT imposes
            1. no artificial barrier to trade
      2. ARTIFICIAL BARRIERS
         1. restriction of free exchange of GnS between countries
   4. ADVANTAGE
      1. a country can obtain GnS they can't produce
         1. specialise in GnS with efficient production
         2. allows the consumption possibilities outside the PPF
      2. efficient Rs allocation
         1. only produce GnS with comparative advantage
         2. lower average cost of production
            1. cheaper imported production inputs
            2. EoS
      3. pressured from international competitors
         1. local producers has increased
            1. conpetitiveness
            2. innovation
      4. increase employment in the long run
   5. DRAWBACK
      1. structural unemployment in the short run
      2. Not all GnS can be traded internationally
      3. Production of most goods involves increasing opportunity costs.
      4. diversed taste & preference
      5. difficult for industries with no competitive advantage
      6. surplus production being "dumped"
         1. hurts local industries
   6. lower prices for domestic consumers
   7. increase living standard as a whole
4. THE EFFECTS of IMPORTS
   1. Price: 0 -> P1
   2. QS = 0 -> Qs
   3. QD = 0 -> Qd
   4. imports = Qs -> Qd
   5. welfare
      1. CS = 1 + 2 + 4
      2. PS = 3
      3. welfare = 1 + 2 + 3 + 4
5. THE EFFECT OF EXPORTS
   1. Price = 0 -> P1
   2. QS = 0 -> Qs
   3. QD = 0 -> Qd
   4. Export = Qd -> Qs
   5. welfare
      1. CS = 5
      2. PS = 6 + 7 + 8
      3. welfare = 5 + 6 + 7 + 8
6. GOVT POLICIES
   1. TRADE BARRIERS
      1. TARIFF
         1. DEF
            1. Tax imposed on imports
         2. increase cost of for buying GnS
         3. deadweight loss = 2 + 4
         4. Govt tax Y = 3
      2. QUOTA
         1. DEF
            1. A numerical limits on the quantity of GnS imported
         2. RENT = 3
            1. benefits going to quota licence holder
            2. If GOVT sellS the licence => revenue
         3. VOLUNTARY EXPORT RESTRAINTS
            1. An agreed QUOTA negotiated between two countries