1. Free Trade and Protectionism
IB Economics

2. WORLD TRADE ORGANIZATION
Supervise and liberalize international trade
WORLD TRADE ORGANIZATION

3. WORLD TRADE ORGANIZATION
160+ member states Supervise and liberalize international trade
WORLD TRADE ORGANIZATION

4. WORLD TRADE ORGANIZATION
Established 1 January member states Supervise and liberalize international trade
WORLD TRADE ORGANIZATION

5. WTO FUNCTIONS

6. Administer WTO trade agreements
WTO FUNCTIONS

7. WTO FUNCTIONS Forum for trade negotiations
Administer WTO trade agreements
WTO FUNCTIONS

8. WTO FUNCTIONS Handle trade disputes Forum for trade negotiations
Administer WTO trade agreements
WTO FUNCTIONS

9. WTO FUNCTIONS Monitor national trade policies Handle trade disputes
Forum for trade negotiations
Administer WTO trade agreements
WTO FUNCTIONS

10. Provide technical assistance and training for developing countries
Monitor national trade policies
Handle trade disputes
Forum for trade negotiations
Administer WTO trade agreements
WTO FUNCTIONS

11. WTO FUNCTIONS Cooperate with other international organizations
Provide technical assistance and training for developing countries
Monitor national trade policies
Handle trade disputes
Forum for trade negotiations
Administer WTO trade agreements
WTO FUNCTIONS

12. DOHA DEVELOPMENT AGENDA

13. DOHA DEVELOPMENT AGENDA
Agriculture, services trade, market access for nonagricultural products, and intellectual property issues
DOHA DEVELOPMENT AGENDA

14. DOHA DEVELOPMENT AGENDA

15. Gains from International Trade
Lower prices
Greater choice
Differences in resources
Economies of scale
Increased competition
Source of foreign exchange

16. S(Domestic) D
S(World)
P W P e Price of wheat ($ per ton)
Q Qe Q2
Quantity of wheat (000s tons)

17. S(Domestic) D
S(World)
P W P e Price of wheat ($ per ton)
Q Qe Q2
Quantity of wheat (000s tons)

18. S(Domestic) D
S(World)
P W P e Price of wheat ($ per ton)
Q Qe Q2
Quantity of wheat (000s tons)

19. Arguments for Protectionism
Protecting domestic employment
Protecting the economy from low-cost labor
Protecting an infant (sunrise) industry
Avoid the risk of over-specialization
Strategic reasons
Prevent dumping
Protect product standards
Raise government revenue
Correct a balance of payments deficit

20. Government Intervention in International Trade
Tariffs
Subsidies
Quotas
Regulations to limit trade

21. P W P e Price of wheat ($/ton)
S(Domestic) D
S(World)
P W P e Price of wheat ($/ton)
Q Qe Q2
Quantity of wheat (000s tons)
S(World) + tariff
Pw+t
Q Q4
Increase domestic Decrease domestic
production consumption

22. Consumer Surplus Before & After Tariff
Price
Consumer Surplus S
PW + T a b c d PW Q1 D
Quantity Q3 Q4 Q2
Change in consumer surplus =
- a - b - c - d

23. Producer Surplus Before & After Tariff
Price S
PW + T a PW Q1 D
Quantity Q3 Q4 Q2
Change in producer surplus =
+ a

24. Summarize to this Point …
Price
Consumer Surplus S
PW + T a b c d PW Q1 D
Quantity Q3 Q4 Q2
Change in consumer surplus =
- a - b - c - d
Loss in Total Surplus = ?????
Change in producer surplus =
+ a
= (b + c + d)

25. Net Change in Society Wealth with Tariff
Price
Consumer Surplus
T · (Q4 – Q3) S
Net change in welfare?
Net loss: b + d
PW + T
“Deadweight loss” a b c d PW Q1 D
Quantity Q3 Q4 Q2
Change in consumer surplus =
- a - b - c - d
Change in producer surplus =
+ a
+ c
Change in government revenue =

26. S(Domestic) D
S(World)
P W P e Price of wheat ($/ton)
Q Qe Q2
Quantity of wheat (000s tons)
S(World) + tariff
Pw+t
Q Q4
a b c d e f
g h i j k

27. Illustrate and Explain…
Draw your own copy of the tariff diagram, with semi-conductors in Japan as the example.
Make a table with two columns: Winners and Losers.
List stakeholders who win or lose by the imposition of the tariff and give a brief explanation in each case of why.
Consider possible international implications.
Use the letters in the diagram to specifically identify the costs and benefits.

28. Subsidies S(Domestic) D S(World) P W P e Price of wheat ($ per ton)
Q Qe Q2 Q of wheat (000s tons)
Subsidies
S(Domestic) + subsidy
subsidy
Pw+ Q3
e f g
a b c d

29. Illustrate and Explain…
Draw your own copy of the subsidy diagram, with cotton in the USA as the example.
Make a table with two columns: Winners and Losers.
List stakeholders who win or lose by the granting of a subsidy and give a brief explanation in each case of why.
Consider possible international implications.
Use the letters in the diagram to specifically identify the costs and benefits.

30. Quotas P W P e Price of wheat ($ per ton) S(Domestic)
S(World)
P W P e Price of wheat ($ per ton)
Q Qe Q2
Quantity of wheat (000s tons)
Quotas
S(Domestic) + Quota
f g h i j k
a b c d e
Q Q4

31. Illustrate and Explain…
Draw your own copy of the quota diagram, with textiles in Europe as the example.
Make a table with two columns: Winners and Losers.
List stakeholders who win or lose by the imposition of a quota and give a brief explanation in each case of why.
Consider possible international implications.
Use the letters in the diagram to specifically identify the costs and benefits.

32. Other Important Terms Voluntary export restraints (VERs)
Administrative barriers
Health and safety standards and environmental standards
Embargoes
Nationalistic campaigns