You owe me work! Josh Alex Ryan China teenager article Q’s You all owe me notes on WTO P476 – 478 notes: What is the WTO? What are the 2 main functions?

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Presentation transcript:

You owe me work! Josh Alex Ryan China teenager article Q’s You all owe me notes on WTO P476 – 478 notes: What is the WTO? What are the 2 main functions? Provide a balanced view about the criticisms of the role of the WTO.

Comparative advantage Use of numbers & diagrams

Syllabus aims…. To understand the distinction between absolute and comparative advantage. The significance of opportunity cost should be emphasised. Comparative advantage may be illustrated numerically and diagrammatically.

Absolute or Comparative Advantage What’s was the difference? Absolute Advantage is where one country is better at producing a product rather than another country. The country that gives up the least of the ‘other’ commodity when increasing output of a particular good has the comparative advantage. Links back to the opportunity cost!

Working out ‘absolute advantage’ Who has absolute advantage in cameras? Who has absolute advantage in vacuum cleaners? Digital cameras Vacuum cleaners UK600 USA Total

Working out ‘absolute advantage’ Who has absolute advantage in cameras? USA Who has absolute advantage in vacuum cleaners? USA Digital cameras Vacuum cleaners UK600 USA Total

What if they specialise fully? What would happen if US just produced cameras & UK produced vacuum cleaners? Digital cameras Vacuum cleaners UK USA Total (original) Total (new)

What if they specialise fully? Digital cameras Vacuum cleaners UK = 1200 USA = 4800 Total (original) Total (new) (now less produced)

What if they specialise fully~2? What would happen if US just produced vacuum cleaners & UK produced cameras? Digital cameras Vacuum cleaners UK USA Total (original) Total

What if they specialise fully~2? Digital cameras Vacuum cleaners UK = 1200 USA Total (original) Total1200 (now less produced) 2000

So lets look at comparative advantage Work out the opportunity costs

Working out opportunity cost… What are the opportunity costs for the UK when producing cameras? Or Vacuum cleaners? What are the opportunity costs for the USA when producing cameras? Or Vacuum cleaners? Digital camerasVacuum cleaners UK600 USA Total

Working out opportunity cost… What are the opportunity costs for the UK when producing cameras? 1:1 Or Vacuum cleaners?1:1 What are the opportunity costs for the USA when producing cameras? 1000/2400 = 0.46:1 Or Vacuum cleaners? 2400/1000 = 2.4 Digital camerasVacuum cleaners UK600 USA Total So who should make cameras? So who should make vacuum cleaners?

Working out opportunity cost… What are the opportunity costs for the UK when producing cameras? 1:1 Or Vacuum cleaners?1:1 What are the opportunity costs for the USA when producing cameras? 1000/2400 = 0.46:1 Or Vacuum cleaners? 2400/1000 = 2.4 Digital camerasVacuum cleaners UK600 USA Total So who should make cameras? So who should make vacuum cleaners?

So how can they ‘specialise’ and have a win - win scenario?

Working out opportunity cost… Digital camerasVacuum cleaners UK USA Total (original) Total

Working out opportunity cost… Or….. Digital camerasVacuum cleaners UK USA (500x2.4) 500 Total (original) Total

Working out opportunity cost… Digital camerasVacuum cleaners UK USA (400x2.4) 600 Total (original) Total Or…..

Working out opportunity cost… Digital camerasVacuum cleaners UK USA (300x2.4) 700 Total (original) Total Or…..

Working out opportunity cost… Opps…. Lost out again! Digital camerasVacuum cleaners UK USA (200x2.4) 800 Total (original) Total

So international trade and ‘specialisation’ will mean US specialises in cameras UK specialises in vacuums And somewhere between 3600 and 3120 cameras and between 1900 and 1700 vacuums would be produced!

Absolute & comparative advantage With diagrams.

PPF’s With no specialisation how much does each country produce? A ….. B…. Or other quantity?

PPF’s With no specialisation the best level of trade is at A where both countries have 20 units of each goods ( = 40!)

PPF’s with specialisation With specialisation how much does each country produce?

PPF’s with specialisation With specialisation each country produces 30 units each ( = 60!)

So through diagrams You can also ‘see’ trade benefits! THE RULE is… The country with the ‘shallower’ PPF has the competitive advantage in production of the good on the x-axis!

Your go….

Terms of Trade… The terms of trade measures the rate of exchange of one good or service for another when two countries trade with each other. For international trade to be mutually beneficial for each country, the terms of trade must lie within the opportunity cost ratios for both country. We calculate the terms of trade as an index number using the following formula: Terms of Trade Index ToT = 100 x Average export price index / Average import price index

More reading advantage.htmlhttp://tutor2u.net/economics/revision-notes/a2-macro-trade-comparative- advantage.html shows-that-win-win-situations-do-exist.htmlhttp:// shows-that-win-win-situations-do-exist.html sex/#extended

Homework Read p465 – 467 Do Q5 And …. Further reading – Applied Ec section p