ABSTRACT
This chapter examines international trade and what determines whether a country is an exporter or importer of a particular product. It also examines the welfare effects of international trade, as well as the effects of government policies with respect to trade, including tariffs and quotas on imports. The chapter suggests that the country is a small country, such that market outcomes in the domestic market have no effect on the world market's outcomes–that is, changes in prices and the quantity traded in the domestic market do not affect world prices. The relationship between the domestic equilibrium price and the world price will determine whether the country is an exporter or an importer of the good. Governments sometimes try to protect local industries by setting up trade barriers that make it more difficult to import goods into the country. The chapter discusses two governmental policies designed to act as barriers to trade: tariffs and quotas.
