Brief Outline

The course is divided into four distinct sections.

1. International Trade History and Current Issues

The Terminology of International Trade

Trade Policy Instruments

Trade History

Current Trade Issues

2. The Effects of International Trade

In this section a variety of models are developed which highlight the following five basic reasons that trade occurs.

differences in technology

differences in resource endowments

differences in consumer demand

existence of economics of scale in production

existence of government policies

The models address the effects that trade has on the prices of goods and services, the profits of firms, the well-being of consumers, the wages of workers, and the return to other factors of production.

3. The Effects of Trade Policies

These models address the effects that trade policies have on the prices of goods and services, the profits of firms, the well-being of consumers, the wages of workers, the return to other factors of production and the implications for the government budget. This section is divided according to the following assumptions on market structure.

Perfect Competition
Market Imperfections and Distortions

4. Evaluating the Controversy: Free Trade or Protectionism?

This final section reviews the results of the course by applying them to the premier controversy in international trade: whether to follow a policy of free trade or selected protectionism. Using trade theory results, we develop the arguments that support a policy of free trade and the arguments that support a policy of selected protectionism. We also provide the counter-arguments or caveats that can be used against each of the arguments supporting a particular position. In the end, the section does not reach a definitive conclusion. It is left to the reader to decide which arguments carry the greatest validity. However, the argument does "tilt" in the direction of free trade.

International Trade Theory and Policy - Chapter 5-3: Last Updated on 7/17/04