Free Trade – Importing Country
Global Economics
This diagram illustrates how a country imports goods under free trade when the world price is lower than the domestic equilibrium price.
Curves and Elements
dd
Dd: Domestic demand for the good (e.g., chips).
sd
Sd: Domestic supply of the good.
pw
Pw: World price, which is lower than the domestic equilibrium price.
qd
Qd: Quantity demanded at the world price.
qs
Qs: Quantity supplied domestically at the world price.
imports
Imports: The difference between Qd and Qs, filled by foreign producers.
In autarky (no trade), the domestic market reaches equilibrium where the domestic supply (Sd) intersects domestic demand (Dd).
When the world price (Pw) is lower than the domestic equilibrium price, consumers increase their quantity demanded to Qd, while domestic producers reduce their supply to Qs.
The difference between Qd and Qs is filled by imports from abroad, allowing domestic consumers to benefit from cheaper goods.
Consumers gain from lower prices and increased quantity consumed, while domestic producers may suffer losses due to lower prices and reduced sales.
Free trade allows the country to specialize based on comparative advantage, increasing overall economic welfare and efficiency.
More Global Economics Diagrams
Explore other diagrams from the same unit to deepen your understanding
This diagram shows how a country exports goods under free trade when the world price is higher than the domestic equilibrium price.
This diagram shows the effects of a tariff imposed on imported goods. A tariff raises the price of imports, protecting domestic producers but creating welfare losses.
This diagram shows the impact of an import quota that limits how many units of a good can be imported. By restricting imports, the domestic price rises above the world price, domestic producers expand output, consumers buy less, and there is a net welfare loss.
This diagram illustrates the effects of a production subsidy, where the government supports domestic producers to lower their costs and increase output. It is a form of protectionism without raising consumer prices directly.
This diagram shows how an export subsidy raises the domestic price above the world price, encouraging producers to export more while reducing consumer welfare and creating deadweight losses.
This diagram uses production possibility curves (PPCs) for two countries—Grania and Chipia—to illustrate absolute and comparative advantage and the potential gains from trade.