ABSTRACT
This chapter analyzes the international trade and competition. The basic tools used to analyze the behaviors of consumers in the market place are indifference curve and budget constraint. The indifference curve shows the various combinations of two goods that provide the same level of satisfaction to consumer. A budget constraint shows the various combinations of two goods that can be purchased with a given level of income at fixed commodity prices. To study production, students must understand first how the producers allocate inputs. A useful theoretical tool that facilitates the analysis of international trade theory is the concept of the production possibility frontier. It shows all the combination of goods X and Y that can be produced with a given amount of inputs. The standard trade model permits one to study the response of producers and consumers to price variations and technological change, and to explain the role played by trade in the allocation of domestic output and consumption.
