Production and Consumption Efficiency Gains from Free Trade

by Steven Suranovic ©1997-2004

Trade 70-16  





The aggregate welfare gains from free trade can generally be decomposed into the production efficiency gains and consumption efficiency gains. However since production cannot shift in either country when moving to free trade, there are no production efficiency gains in the immobile factor model. Thus, in the US, the increase in utility between IFT and IAut shown in the Figure, represents an increase in consumption efficiency.

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International Trade Theory and Policy Lecture Notes: ©1997-2004 Steven M. Suranovic
Last Updated on 9/16/99