TRADE IN A GLOBAL ECONOMY

BENEFITSISSUES Specialization Increased world output due to specialization Increased standard of living around the world Economic interdependence Tariffs Human Rights in the workplace ( Ex. Sweatshops) Fair Trade INTERNATIONAL TRADE

ABSOLUTE ADVANTAGE: definition-and-examples.html

Absolute AdvantageComparative Advantage The ability of one trading nation to make a product more efficiently than another trading nation The idea that a nation will specialize in what it can produce at a lower opportunity cost than any other nation Absolute vs. Comparative Advantage in Trade

Output in Units Per Day Lawn MowingLaundry Tony212 Jen510 Sample Question: A.How many loads of laundry can Tony do in a week? ________ How many loads of laundry can Jen do in a week? ______ B.How many lawns can Tony mow in a week? ________ How many lawns can Jen mow in a week? ________ C.Who has the Absolute Advantage in lawn mowing? ________________ D.Who has the Absolute Advantage in laundry? ________________ Jen Tony

Opportunity Cost Mow lawnsLaundry Tony Jen *Hint: You calculate opportunity cost by calculating what you are giving up when you make only one of each item. Ex.) If Jen mows only 1 lawn, how many loads of laundry is she giving up? Put your answer in the table next to Jen under laundry. Output in Units Per Day Mow lawnsLaundry Tony212 Jen /6 1/2

Who has the Comparative Advantage in lawn mowing? __________________ Who has the Comparative Advantage in laundry? __________________ Applying the Law of Comparative Advantage, who should mow lawns? ___________________ Opportunity Cost Mow lawnsLaundry Tony Jen 6 2 1/6 1/2 Jen Tony Jen

Output in units per hour CARSTV’s CHINA JAPAN How many cars can China make in a day? ________ How many tv’s can Japan make in a day? ________ Who has the Absolute Advantage in car production? ________________ Who has the Absolute Advantage in tv production? ________________ CHINA JAPAN

Output in units per hour CARSTV’s CHINA JAPAN Opportunity Cost CARSTV’s CHINA JAPAN 1/ /5

Opportunity Cost CARSTV’s CHINA JAPAN 1/ /5 Who has the Comparative Advantage in Car production? __________________ Who has the Comparative Advantage in tv production? __________________ Applying the Law of Comparative Advantage, who should produce Cars? ___________________ CHINA JAPAN CHINA

Output in Units Per Day Cakes Cookies (dozens) Robin1020 Jake15 How many Cakes can Robin make in a week? ________ How many dozens of Cookies can Jake make? ________ Who has the Absolute Advantage in Cake production? ________________ Who has the Absolute Advantage in Cookie production? ________________ Jake Robin

Output in Units Per Day Cakes Cookies (dozens) Robin1020 Jake15 Opportunity Cost Cakes Cookies (dozens) Robin Jake *Hint: You calculate opportunity cost by calculating what you are giving up when you make only one of each item. Ex.) If Robin makes only 1 cake, how many dozens of cookies is she giving up? Put your answer in the table next to Robin under cakes /2 1

Opportunity Cost Cakes Cookies (dozens) Robin Jake Who has the Comparative Advantage in Cake production? __________________ Who has the Comparative Advantage in Cookie production? __________________ Applying the Law of Comparative Advantage, who should produce Cakes? ___________________ 2 1 1/2 1 Jake Robin Jake

TRADE AGREEMENTHOW DO THEY WORK? EUROPEAN UNIONBound both economically & politically (member surrender some sovereignty; monetary union (euro), common foreign policy NAFTALargest free-trade zone in the world; eliminated tariffs; phase-out of all trade barriers; increased protection for intellectual property & environmental protections OPECGroup of producers that regulate the production, pricing, and marketing of oil WTOHelp negotiate trade agreements; resolve disputes; monitor trading policies; provide support for developing countries