International Trade

Domestic Monopolist and Trade

Free trade can remove the inefficiency incurred by a domestic monopoly.

Domestic Monopolist and Import

Before trade, this country produces where MR=MC, [1] with production Q1 [2] and price Pd. [3]

After trade, as the domestic price Pd is greater than the world price PW, [4] domestic consumers consume Q3. [5]

As PW is the amount of money that producers receive whenever they sell one more unit, the domestic monopolist will produce when PW=MC: in other words, Q2. [6] Then the amount imported is Q3 - Q1. [7]
As a result:
  • Consumer surplus increases from APdB [1] to APWE. [2]
  • Producer surplus decreases from CPdBH [3] to CPWF. [4]
  • The net gain is BGE+HGF [5]
    		•


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