Part II Overview

Overview

Part II explains how trade changes prices, quantities, and welfare in a single market. The main question is:

Once trade changes the domestic price, who gains, who loses, and what happens to national welfare?

The three chapters in this part move from the basic welfare logic of trade to the main policy instruments used by importing and exporting countries. Chapter 4 introduces consumer surplus, producer surplus, total surplus, excess demand, excess supply, and the world price. Chapter 5 studies import-side policies such as tariffs, quotas, tariff-rate quotas, domestic subsidies, and effective rate of protection. Chapter 6 studies export-side policies such as export promotion, export subsidies, dumping, countervailing duties, antidumping duties, and export taxes.

Chapters in this part

Chapter	Main focus	What you should be able to do
Chp 4. Gains from Trade and Partial Equilibrium	Consumer surplus, producer surplus, total surplus, world price, excess demand, excess supply	Calculate welfare before and after trade and identify exporters and importers
Chp 5. Trade Barriers for Importing Countries	Tariffs, quotas, tariff-rate quotas, domestic subsidies, local content rules, effective rate of protection	Explain how import restrictions affect consumers, producers, government revenue, and deadweight loss
Chp 6. Trade Policy Instruments for Exporters	Export promotion, export subsidies, dumping, countervailing duties, antidumping duties, export taxes	Identify winners and losers from export-side policies and explain why some export policies reduce national welfare

Learning path

The logic of Part II is cumulative.

First, we learn how to measure welfare using consumer surplus, producer surplus, and total surplus. Then we use these tools to study import barriers. Finally, we apply the same welfare logic to export-side policies.

flowchart LR
  A["Chp 4\nTrade and welfare"] --> B["Chp 5\nImport barriers"]
  B --> C["Chp 6\nExport policy instruments"]
  C --> D["Part III\nWTO, agriculture, and RTAs"]

Key concepts

By the end of Part II, you should understand the following concepts:

consumer surplus
producer surplus
total surplus
world price
excess demand
excess supply
trade creation in a single market
deadweight loss
production distortion
consumption distortion
tariff revenue
quota rent
tariff-rate quota
domestic subsidy
effective rate of protection
export subsidy
dumping
normal value
countervailing duty
antidumping duty
export tax

How to study this part

Do not study the diagrams as drawings to memorize. Study them as accounting tools.

For every policy diagram, ask four questions:

What happens to the domestic price?
What happens to domestic production and consumption?
Which group gains and which group loses?
Is there a net welfare gain or a net welfare loss?

For import barriers, focus on how higher domestic prices affect consumers, producers, government revenue, and quota holders.

For export policies, focus on how policies that appear to help exporters may still reduce national welfare once consumer losses, government costs, and terms-of-trade effects are included.

Applied examples in this part

Part II uses several numerical examples from the course materials:

Example	Used in	Main lesson
Two-country free-trade welfare example	Chp 4	Free trade raises total surplus but redistributes welfare between consumers and producers
Supply shock in the exporting country	Chp 4	A worsening supply condition raises the world price and reduces trade volume
Small-country tariff diagram	Chp 5	Tariffs raise domestic prices and create deadweight losses
Egypt wheat import shock	Chp 5	Import dependence makes food markets vulnerable to foreign supply shocks
Cheese effective rate of protection example	Chp 5	Protection on outputs and inputs can have very different effects on value added
Oman fish export subsidy example	Chp 6	Export subsidies create winners and losers across exporting and importing countries

Bridge to Part III

Part II explains what trade policies do to welfare. Part III asks a different question:

Which trade policies are allowed, disciplined, or constrained by WTO rules and regional trade agreements?

This transition is important. A policy may have a clear welfare effect in theory, but countries also face legal commitments under WTO agreements, SPS rules, agricultural support disciplines, and regional trade agreements.

--- title: "Part II Overview" --- ## Overview Part II explains how trade changes prices, quantities, and welfare in a single market. The main question is: > Once trade changes the domestic price, who gains, who loses, and what happens to national welfare? The three chapters in this part move from the basic welfare logic of trade to the main policy instruments used by importing and exporting countries. Chapter 4 introduces consumer surplus, producer surplus, total surplus, excess demand, excess supply, and the world price. Chapter 5 studies import-side policies such as tariffs, quotas, tariff-rate quotas, domestic subsidies, and effective rate of protection. Chapter 6 studies export-side policies such as export promotion, export subsidies, dumping, countervailing duties, antidumping duties, and export taxes. ## Chapters in this part | Chapter | Main focus | What you should be able to do | |---|---|---| | [Chp 4. Gains from Trade and Partial Equilibrium](chp-04-gains-from-trade.qmd) | Consumer surplus, producer surplus, total surplus, world price, excess demand, excess supply | Calculate welfare before and after trade and identify exporters and importers | | [Chp 5. Trade Barriers for Importing Countries](chp-05-import-barriers.qmd) | Tariffs, quotas, tariff-rate quotas, domestic subsidies, local content rules, effective rate of protection | Explain how import restrictions affect consumers, producers, government revenue, and deadweight loss | | [Chp 6. Trade Policy Instruments for Exporters](chp-06-export-policy-instruments.qmd) | Export promotion, export subsidies, dumping, countervailing duties, antidumping duties, export taxes | Identify winners and losers from export-side policies and explain why some export policies reduce national welfare | ## Learning path The logic of Part II is cumulative. First, we learn how to measure welfare using consumer surplus, producer surplus, and total surplus. Then we use these tools to study import barriers. Finally, we apply the same welfare logic to export-side policies. ```{mermaid} flowchart LR A["Chp 4\nTrade and welfare"] --> B["Chp 5\nImport barriers"] B --> C["Chp 6\nExport policy instruments"] C --> D["Part III\nWTO, agriculture, and RTAs"] ``` ## Key concepts By the end of Part II, you should understand the following concepts: - consumer surplus - producer surplus - total surplus - world price - excess demand - excess supply - trade creation in a single market - deadweight loss - production distortion - consumption distortion - tariff revenue - quota rent - tariff-rate quota - domestic subsidy - effective rate of protection - export subsidy - dumping - normal value - countervailing duty - antidumping duty - export tax ## How to study this part Do not study the diagrams as drawings to memorize. Study them as accounting tools. For every policy diagram, ask four questions: 1. What happens to the domestic price? 2. What happens to domestic production and consumption? 3. Which group gains and which group loses? 4. Is there a net welfare gain or a net welfare loss? For import barriers, focus on how higher domestic prices affect consumers, producers, government revenue, and quota holders. For export policies, focus on how policies that appear to help exporters may still reduce national welfare once consumer losses, government costs, and terms-of-trade effects are included. ## Applied examples in this part Part II uses several numerical examples from the course materials: | Example | Used in | Main lesson | |---|---|---| | Two-country free-trade welfare example | Chp 4 | Free trade raises total surplus but redistributes welfare between consumers and producers | | Supply shock in the exporting country | Chp 4 | A worsening supply condition raises the world price and reduces trade volume | | Small-country tariff diagram | Chp 5 | Tariffs raise domestic prices and create deadweight losses | | Egypt wheat import shock | Chp 5 | Import dependence makes food markets vulnerable to foreign supply shocks | | Cheese effective rate of protection example | Chp 5 | Protection on outputs and inputs can have very different effects on value added | | Oman fish export subsidy example | Chp 6 | Export subsidies create winners and losers across exporting and importing countries | ## Bridge to Part III Part II explains what trade policies do to welfare. Part III asks a different question: > Which trade policies are allowed, disciplined, or constrained by WTO rules and regional trade agreements? This transition is important. A policy may have a clear welfare effect in theory, but countries also face legal commitments under WTO agreements, SPS rules, agricultural support disciplines, and regional trade agreements.