The Effects of Trade on Production, Consumption, and Price

The three graphs above illustrate some of the important effects of trade on production, consumption, and price. In autarky (the absence of trade), the U.S. price for a motorbike is $2000 while in the rest of the world, the price of a motorbike is $700. This price difference provides a reason for trade. When trade breaks out, demand and supply in each country interact to determine the world price of motorbikes and the quantities produced, consumed, and traded. In this example, the world price with trade is $1000. 50 motorbikes are exported from the rest of the world and 50 motorbikes are imported by the United States. 50 motorbikes at a price of $1000 clears the international market for motorbikes. Click on the button below to show the imports and exports on the graph. Click continue when you are ready to move on to the next page.