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Free Trade
Free trade
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Trade between countries without any trade barriers
Before the country opened up trade, the domestic market was at an equilibrium level of output price Pd and quantity Qd.
Export
When the world price (Pw) is greater than the domestic price (Pd), the country will choose to export their product. The excess supply in the domestic market at Price Pw will be the quantity of export (Qs - Qd).
Import
When the world price (Pw) is lower than domestic (Pd), the country will choose to import the product from foreign supply. The excess demand in the domestic market at price Pw will be the quantity of import (Qd - Qs).
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