Chapter 11 - International trade of goods. After completing this unit, you should be able to: Discuss the extent of U.S. international trade, explain the concepts of comparative advantage and absolute advantage, analyze the costs and benefits of international trade,...
Trang 1Introduction to Economics: Social Issues and Economic Thinking
Wendy A Stock
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Trang 2Ø Discuss the extent of U.S
international trade
Ø Explain the concepts of
comparative advantage and
absolute advantage
Ø Analyze the costs and benefits
of international trade
Ø Describe the distribution of the
costs and benefits from
international trade
Ø Assess the arguments for and against limiting international trade
Ø Describe the costs, benefits, and mechanisms of limiting international trade
Ø Describe some of the forms of trade liberalization
After studying this chapter, you should be
able to:
Trang 3Ø Exports – Goods or services produced
domestically but sold abroad
Ø Imports – Goods or services produced abroad
but sold domestically
Ø Trade surplus – When a country ’s level of
exports exceeds its level of imports
Ø Trade deficit – When a country ’s level of imports exceeds its level of exports
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International trade
Trang 4World leading traders
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Top U.S trade partners
Trang 6Ø Countries trade goods and services for the same reasons that individual consumers and producers trade goods and services, namely because trade generates benefits to the trading partners.
WHY DO WE TRADE?
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Production possibilities
Trang 8Ø Landia has absolute advantage in the production of both computers and shoes relative to Seavia since Landia can produce more computers and shoes
than Seavia.
Ø But, what about comparative advantage?
Absolute advantage
Trang 9Opportunity cost of shoes per day
1S = 3,000/450 = 6.67 computers ( C ), or
1S = 6.67C Opportunity cost of computer per day
1C = 0.25S
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Which has comparative advantage in what?
Trang 10Ø Because Seavia can produce shoes at a lower opportunity cost than Landia, Seavia has
comparative advantage in producing shoes
Ø Because the cost of producing a computer in Landia is lower than it is in Seavia, Landia has comparative advantage in producing computers
Ø Landia will specialize in producing computers (total 3,000 computers and no shoes) and
Ø Seavia will specialize in producing shoes (total
Which has comparative advantage in what?
Trang 11Ø The Terms of Trade describes the price or rate of exchange of one good for another
Ø In order for two countries to be better off by trading, the terms of trade need to be between the two
countries’ opportunity costs of production.
Ø Which implies …
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Terms of trade
Trang 13Landia trades 1,000 computers to Seavia for 200 units of shoes
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Production and consumption possibilities
Trang 14Impact of exports
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Impact of imports
Trang 16Winners and losers from free trade
Trang 17Protectionism is the limiting of free trade between countries by using tariffs, quotas, or other
regulations
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protectionism
Trang 18Ø Protecting Jobs
Ø National Security
Ø Differences in Environmental or Labor Policy
Arguments for protectionism
Trang 19Ø Restricting imports does protect jobs in some
industries
Ø However, protection comes at a very high cost for a large number of other consumers,
households, and businesses in the economy
Ø Average cost per job saved from protecting
industries from import competition is estimated
at $231,289 per year
Ø These costs come in the form of higher prices
for the protected goods and services themselves and from higher prices for the products that use protected goods as inputs
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Costs of protecting jobs
Trang 20Ø Tariff – A tax on imported goods or services.
Ø Quota – A restriction on the quantity of imported goods or services in a country
Ø Regulations - Technical or content requirements placed on imports as well as subsidies for
domestically produced goods
FORMS OF TRADE RESTRICTIONS
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Impact of tariff
Trang 22Impact of quota
Trang 23Ø Regional Trade Agreements – Agreements by countries in a region to reduce trade restrictions among themselves (EU, NAFTA)
Ø World Trade Organization (WTO) – An
international organization of 157 member states with the goal of reducing trade barriers
throughout the world WTO acts as the official arbiter of trade disputes between countries and
is the negotiator and administrator of WTO trade agreements ratified by its members
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FORMS OF TRADE LIBERALIZATION
Trang 241) It takes country A 2 units of labor to
produce 1 computer and 2 units of labor to produce 1 TV It takes country B 3 units of labor to produce 1 computer and 4 units of labor to produce 1 TV.
a) Which country has absolute advantage in
Trang 25Copyright © 2013 John Wiley
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• Regional trade agreements
• World Trade Organization