[MUSIC] We'd looked at free trade now from a couple of different perspectives. We looked at production possibilities curves and two countries that were very different. And we saw how both of them were able to have more than they ever would without trade. Then we looked at the partial equilibrium analysis. We saw the importing country, the exporting country and we saw how consumer surplus was maximized with trade. And somehow it was lost by interfering with trade as well as surplus being lost by not trading at all. Of course, the model has been, I've simplified it tremendously and there are some basic assumptions we have to be aware of. We're thinking of perfect competition, we're thinking of only two countries, two goods. Those goods we're assuming there are no tariffs except in the tariff case. No transport costs, and we're assuming full employment which is a big one. But anyway, using these models we can come to some basic conclusions. One is that free trade and specialization and remember, specialization is impossible without trade. With free trade and specialization, a country is lifted off its production possibilities frontier at the moment of consuming, therefore, scarcity which is a basic economic problem is alleviated. Secondly, the fact that we can specialize and then trade, means that globally, efficiency increases. The world's scarce resources, and scarcity is always the problem in economics. The world's scarce resources are used more efficiently and therefore, once again, we have more of everything. Thirdly as we indicated, the total surplus in the economy is maximized. The consumer surplus gets bigger in some cases, producer surplus gets bigger in other cases but in every case we get that magic triangle where countries take advantage of their increased efficiency that they can tap into because of specialization and trade. And what we need to remember is that both countries get this advantage. The trade is not I win, you lose. Trade is a win-win situation where both countries benefit. And we also find with trade that prices for many goods decline as a result of trade. And we need to remember that these prices, these declining prices, benefit mainly the lower income households who tend to spend more of their money on basic goods. So we know that the price of basic goods for low income households has fallen in developed countries by about two-thirds in recent decades, which is very, very substantial increase as their standard of living. This is the live illustration of the increase in the consumer surplus. And both countries have more than they ever could without trade. So, often when we talk about trade, people are saying, well, my country wins and yours looses. I've tried to demonstrate to you in this analysis that that's not possible. It is possible that one country will benefit more than the other, okay? If the world price is closer to my price, I will benefit less. If it's further away from my price, I'll benefit more and that's just common sense. But both are benefiting. And it also is common sense to realize, a country will not engage in world trade unless they can gain something by the price, otherwise they'll just sell at home. So the bottom line of our discussion about trade, both using the production possibilities curves and using the partial equilibrium analysis, is that free trade is a win-win situation for both countries. And this is a conclusion that really needs to be repeated over and over and over in today's political debate. [MUSIC]