INTERNATIONAL TRADE

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International Trade , Barriers , and Economic Integration

A general analysis of world trade is not a simple undertaking . It goes beyond mere understanding of comparative advantage , factor intensity and perfect competition . International trade is also determined by the size of economies , world prices of exchange commodities , economic barriers , and level of integration to the world economy . One can infer that these factors play a crucial role in the determination of flexibility of decision-making in integrated markets - entities which can only be examined via complex

economic tools

International trade is partially determined by the size of economy . In the case of a large open economy , the import supply curve does not have to be perfectly elastic . Hence , the downward shift in the import demand curve suggests (world price of the importable good and (imports (Figure 1

Figure 1 . Import Demand Curve

However , it must be noted that these effects are only partially visible when economic barriers are implemented . For example , the existence of import tariff will create distortions in an economy . The import tariff creates the tendency for domestic price to rise (p1 t p0 ) and for imports to fall (m1 m0 (Figure 2 . However , the decline in imports for a large economy is smaller than what it would have been for a small economy . The reason for this is the decline in the world price

Figure 2 . Import Tariff

The increase in the domestic price is less than the amount of the tariff , because part of...