Hey guys, now we're going to return to the topic of trade. Let's see what happens in a domestic market when a country opens up to international trade, right? We had people, and we saw how they could reach points outside of their production points by trading, right? And we saw that they were going to produce and trade goods where they had a comparative advantage, right? The comparative advantage, remember, was that they had a lower opportunity cost for producing that good compared to the other country or the other person. If you don't remember much about it, we're not going to dive so much into comparative advantage here, but it is what drives these international trades to happen. So if you want more information again about comparative advantage or want to refresh, you could probably just type it into the search bar and get a little refresher there on comparative advantage, but again, we're not going to deal with it so much here as it's just, you know, the driving force of these trades. Cool? So let's go ahead and start with this situation. This funny word, autarky, and this is when a country does not trade, okay?

Before we get to the trading, let's just kind of see our baseline where we start from. When a country is not trading with other countries, it's called autarky. We've got this funny word, and in this chapter, we're going to be focusing a lot on what happens to consumer surplus, producer surplus, right? All these kinds of things that we've been seeing in different situations, now we'll see it in the situation of trade. Here we've got a graph, kind of something we're used to, except now you can see I've called it domestic supply and domestic demand. This is only for our country. So we could think only in the US, this is the supply of the product and this is the demand for the product in the U.S., right? And like we've seen, we would reach some sort of equilibrium here, right? And we would have this q_star right here and this p_star. We've seen all this before, where our consumer surplus was everything above the price but below the demand curve. Our producer surplus was everything below the price and above the supply curve. This is all stuff we've seen before, so now we're going to see what happens to these surpluses when we open up to international trade.

In this situation in autarky, we are dealing with this domestic price. The domestic price is the price inside the country when there's no international trading. It's just that country's price, based on their supply and demand. Now when we go into the international trading examples, we're going to be talking about this world price. And this is the price on the worldwide market. And we're going to use this acronym WP for the world price. Just a couple notes before we move down to our first example for international trade, is that the international trading is going to happen at the world price. So the domestic price isn't really going to matter anymore. What we're going to use that price for is to compare to the world price. Is the domestic price higher or lower than the world price, okay? So that's how we use the domestic price, but our focus is going to be on the world price. And one more thing is that the quantities that we're going to be talking about will always be domestic quantities. So we're only going to be talking about the quantity supplied domestically, the quantity demanded domestically. So that's kind of how we're going to follow-up here.

Alright? So let's go on to our first example, down below and let's start that in the next video. Alright? Let's do that now.