When a country opens up to international trade, it shifts from a state of autarky, where it does not engage in trade, to participating in the global market. In autarky, the country operates solely based on its domestic supply and demand, leading to a specific equilibrium price and quantity, denoted as p* and q*. At this point, consumer surplus, which is the area above the price and below the demand curve, and producer surplus, the area below the price and above the supply curve, are established based on the domestic price.

The concept of comparative advantage is crucial in understanding international trade. It refers to a country's ability to produce a good at a lower opportunity cost than another country, driving the decision to trade. While this summary does not delve deeply into comparative advantage, it is essential to recognize that it underpins the benefits of trade.

Once a country engages in international trade, the focus shifts to the world price (WP), which is the price of goods in the global market. This world price becomes the benchmark for domestic prices. If the domestic price is higher than the world price, it indicates that the country may import goods, while a lower domestic price suggests potential exports. The quantities discussed in this context will always refer to domestic supply and demand, allowing for a clear comparison between domestic and world prices.

As we explore the implications of opening up to trade, we will analyze how consumer and producer surpluses are affected by the transition from autarky to a market influenced by world prices. This analysis will provide insights into the economic dynamics at play when countries engage in international trade.