1 Chapter 9 part 1 International Trade These slides supplement the textbook, but should not replace reading the textbook.

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Presentation transcript:

1 Chapter 9 part 1 International Trade These slides supplement the textbook, but should not replace reading the textbook

2 All nations can increase productivity, lower prices, increase jobs and standard of living Why trade with other nations?

3 Because the world’s resources are not evenly distributed around the globe Why is trade advantageous for all countries?

4 Shifts in the Economy’s PPF An increase in available resources Food Clothing FF'F' A A'A' Without international trade With international trade

5 A situation of national self-sufficiency in which there is no economic interaction with foreigners What is Autarky?

6 12% of GDP is exported How much do we export to other nations?

7  High tech  Industrial  Agricultural  Entertainment What are the main products that we export?

8  Manufactured consumer goods  Capital goods  Oil  Metals What are key imports?

9 14% the size of GDP is imported How much do we import from other nations?

10 How much of one good exchanges for a unit of another good What are the terms of trade?

11 It has something that other countries want What gives a county’s currency value?

12 The demand and supply of that currency on the international market What determines the value of a county’s currency

13  Canada  Japan  Mexico  Germany  Great Britain  South Korea  France  Hong Kong  Italy  Brazil Who are our main trading partners?

14 Canada Which country do we trade the most with?

15  Exports - an increase the export of machinery  Imports - an increase in the purchase of oil What are changes in trade over the past 20 years?

16 Yes! By each country specializing in certain exports non-productive activity is lessened Does specialization increase in productivity?

17 In those goods and services that it has a comparative advantage What should a country specialize?

18 Producing something with lower opportunity costs than others What is comparative advantage?

19 Producing something better than others What is absolute advantage?

20 It should produce those things in which it has a comparative advantage What should a country produce?

21 Even if Americans were best at making wicker baskets our opportunity costs would be very high in this activity What is an example of comparative advantage?

22 If a country has a comparative advantage in a product that product should be produced if the job can be done good enough What is the good enough rule?

23  differences in resources  economies of scale  differences in tastes What are the reasons for international specialization?

24 When the world price is... > our price, export < our price, import = our price, will not trade When will we trade?

25 When the high wage worker is a lot more productive than the low wage worker When would a high wage worker be cheaper than a low wage worker?

26 Infrastructure Capital Education Skills Attitude What makes one worker more productive than another? Better

27 There are good and bad reasons for trade restrictions Why have trade restrictions?

28  tariffs  import quotas  export subsidies  licensing agreement  unreasonable standards How do we restrict trade?

29  Specific - applied to a specific good, like a barrel of oil  Ad Valorem- a percentage of the price of imports at the port of entry What are two types of tariffs?

30  An increase in prices  A decrease quantity in supplied  A lower standard of living What are the effects of a tariff or quota?

31 The practice of selling a commodity abroad at a price that is below its cost or below the price charged in the home market What is dumping?

32 What are the three types of dumping?

33  Predatory is when the purpose of dumping is to drive competitors out of the market, this is rare  Long-term is when there are economic reasons that a product can be sold at a low price, for example, less competition  Sporadic occurs when there are excess inventories

34 What are arguments for tariffs and quotas?

35  National defense  Protect infant industries  Protect against predatory dumping  Reduce unemployment  Protect temporary declining industries  Promote variety

36 A development strategy that emphasizes domestic manufacturing of products that are currently imported What is export substitution?

37 What are arguments against trade restrictions?

38  Leads to retaliation  Subsidizes weakness  Works against comparative advantage  Problems with policing & enforcing  Encourages rent seeking

39 A development strategy that concentrates on producing for the export market What is export promotion?

40  Treat all nations equally  Reduce tariff rates  Reduce import quotas What is the General Agreement on Tariffs & Trade (GATT)?

and there are presently 123 participating countries When was GATT formed and how big is it?

42 ( NO, as of Jan.1, 1995 GATT was replaced by the World Trade Organization (WTO) Is GATT still GATT?

43 A market in Europe begun in 1958 as a way of creating barrier-free trade in Europe What is the Common Market?

44 Passed during the Clinton Administration to remove barriers of trade with Mexico What is North American Free Trade Agreement (NAFTA)?

45 END