International Trade

Domestic Monopolist and Trade

Free trade can remove the inefficiency incurred by a domestic monopoly.

Domestic Monopolist and Import

Before trade, this country produces where MR=MC, with production Q1 and price Pd. (1)

After trade, as the domestic price Pd is greater than the world price PW, domestic consumers consume Q3.

As PW is the amount of money that producers receive whenever they sell one more unit, the domestic monopolist will produce when PW=MC: in other words, Q2. Then the amount imported is Q3 - Q1. (2)

(1)  (2)

As a result:

* Consumer surplus increases from APdB to APWE.
* Producer surplus decreases from CPdBH to CPWF.
* The net gain is BGE+HGF (3)
(3)  (4)  (5)

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