Economics Essay: Demand, Supply, Trade, and Protectionist Policies

This economics essay delves into the fundamental concepts of demand and supply, clarifying the distinction between a change in quantity demanded and a change in demand through diagrammatical illustrations. The essay then examines international trade, highlighting protectionist policies, partic...Read More

Running head: ECONOMICS 1
Economics
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ECONOMICS
Introduction
Economics describes how individuals, households, and society as a whole choose to
allocate scarce resources towards productive courses (Brooks, 2014). It answers the questions of
what, how, and for whom to produce goods and services. This essay discusses the difference
between change in quantity demanded and change in demand with diagrammatical illustrations.
In addition, protectionist international trade policies are highlighted with regard to President
Trump’s trade policies in the United States.
Analysis
Demand is the quantity of goods and services that buyers are willing and ready to
purchase at a certain price in the market (Bos, 2014). Supply on the other hand is the amount of
goods and services that traders are willing to sell in the market at various prices. Economic
decisions cannot be made unilaterally based on demand considerations. The interaction of
demand and supply factors is considered in order to generate rational economic decisions. The
demand and supply curve indicate the relationship between product price and quantity demanded
and supplied respectively.

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Figure 1
Figure 1 above illustrates how demand curve and supply curve interact. The demand curve D is
negatively sloping implying that consumers demand more at lower prices and less at higher
prices. The supply curve is positively sloping indicating that producers produce more of a
product when their prices are high. The point of intersection of the two curves is the market
equilibrium point. At this point the quantity supplied and demanded are equal.
Distinction between change in demand and Quantity demanded
Change in quantity demanded is change in amount of a product purchased by consumers
in response to changes in prices of the product. When price of a product increase, the quantity
demanded of a product declines. However, a price decrease leads to an increase in quantity
demanded. Change in quantity demanded of a product is illustrated by a movement along the
demand curve (Ehrenberg & Smith, 2016).

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Figure 2
Figure 2 above shows the effect of price and price alone of a product on the demand curve
ceteris paribus. The decline in product price from P1 to P2 resulted to an increase in Quantity
demanded from quantity Q1 to Q2. The resultant effect of the change in price of the product lead
to a movement along the demand curve from point A to C.
Change in demand is the increase or decrease in demand of a product or service as a
result of changes in various demand determinants keeping price constant. Apart from price,
demand is influenced by taste and preferences, population, legislations, income, price of
substitutes and supplements among other factors while own price of the product remains constant
(Heizer, 2017). The impact of these changes is a shift of the demand curve.

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Figure 3
Figure 3 above shows a shift of the demand curve to the right as a result of changes in
determinants of demand other than price. The demand increased from point Q1 to Q2 while price
remained constant at P. The change might have resulted from a change in customer taste and
preferences in favor of the product, an increase in consumer disposable income, increase in price
of substitutes, or an increase in population (Lundberg, 2017).
Figure 4

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Figure 4 above shows a shift in the demand curve to the left as a result of change in demand. The
demand changed from point D to D1. The change can be associated to changes in customer
preferences towards substitutes, a decline in customer disposable income, a decline in population
among other factors that reduce demand.
International Trade
Globalization has resulted in an increase in international trade between countries. Some
countries have entered in to free trade agreements with trade partners with the intention in
boosting trade and making goods that are not available locally easily available for citizens.
International trade also provides market for locally produced products internationally. Contrary
to Free Trade, countries might create policies that restrict trade through protectionist policies
(Wooldridge, 2015). Protectionist trade is achieved through imposition of quotas and tariffs.
Import quotas is a limit on amount or monetary value of goods and services that can be imported
by a country in a given time period (Feenstra, 2015). Tariffs on the other hand are taxes imposed
on imported goods by the government.
President Trump recently proposed protectionist policies in its international trade policy.
The policy imposes huge tariffs on goods worth billions of dollars imported from China, Mexico,
European Union and Canada. Most of the affected countries responded by launching retaliatory
tariffs on American imports leading trade wars. The United States imposed a 25% tariff on
Chinese goods worth $50 billion and another set of tariffs on $200 billion of Chinese products.
The products affected was majorly steel, furniture, car parts and electronics. In 2017, the United
States exported goods worth 130,000 million USD worth of goods to China while it imported
505,000 million USD worth of goods. This implies that the trade deficit was around 376,000

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Million US dollars. President Trump noted that the china-American trade was biased in favor of
China. He also accused china of engaging in unfair trade characterized by infringement of
copyrights and export of US jobs to China.
The comparative advantage theory
The comparative advantage theory of international trade argues against protectionist trade
since it supports free trade. The theory argues that a country has a comparative advantage
countries engaging in international trade gain from benefits of comparative advantage (Viner,
2016). Both countries would still gain even when the balance of trade is adverse. The theory is
based on the argument that countries should produce and trade in products in which it has a
comparative advantage over other countries. Comparative advantage in this case is low
production cost. The United States can therefore concentrate on producing and exporting
products and services which it can produce at lower costs compared to trading partners instead of
engaging in protectionist trade.
The absolute advantage theory
The absolute advantage theory supports international trade in that, even if a country has an
absolute advantage in producing most products compared with its trading partner, there is a high
possibility that the other country would be able to produce a different product at lower costs and
lower opportunity cost (Miller & Benjamin, 2017). Therefore, the United States should engage in
protectionist trade instead, it should target on producing and exporting more of the products for
which it has a comparative advantage. The arguments are based on the concept of specialization.

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Conclusion
Major economic decisions are based on the theory of demand and supply. These concepts
determine amount of products traded and retailing prices. However, it is worth noting that
change in quantity demanded and change in demand are two different concepts. Change in
quantity demanded is caused by changes in own price of a product while change in demand is
caused by changes in determinants of demand other than price. In light of the recent protectionist
trade proposed by President Trump, the theories of comparative advantage and absolute
advantage proposes that the United States should promote international trade. This can be
achieved through lifting protectionist policies and specialize in exporting those products that can
be produced at lower costs.

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References
Bös, D. (2014). Public enterprise economics: theory and application (Vol. 23). Elsevier.
Brooks, C. (2014). Introductory econometrics for finance. Cambridge university press.
Ehrenberg, R. G., & Smith, R. S. (2016). Modern labor economics: Theory and public policy.
Routledge.
Feenstra, R. C. (2015). Advanced international trade: theory and evidence. Princeton university
press.
Heizer, J. (2017). Principles of Operations Management Plus Myomlab with Pearson Etext.
Pearson Education.
Lundberg, J. (2017). The Laffer curve for high incomes. Pearson Education.
Miller, R. L., & Benjamin, D. K. (2017). Economics of macro issues. Pearson.
Viner, J. (2016). Studies in the theory of international trade. Routledge.
Wooldridge, J. M. (2015). Introductory econometrics: A modern approach. Nelson Education.