9.1 The Determinants of Trade

9.1 a. The Equilibrium before Trade

Equilibrium is the state in which market supply and demand balance each other and, as a result, prices become stable. ^[1]

Example: if a country does not trade their textiles internationally, their market price will be set by the equilibrium price from the supply and demand of textiles.

^{Equilibrium Before Trade [2]}

9.1 b. The World Price and Comparative Advantage

A price for a good or service in all countries other than one’s own. Barring any trade barriers, a country exports goods and services with local prices lower than the world price. On the other hand, it imports goods and services with higher local prices than the world price. ^[3]

Example: If a developing country is importing an agricultural product, a lower world price is beneficial. ^[4]

^{World Price and Domestic Price [5]}