1. Principles of Macroeconomics 3250:201
Instructor: Richard W. Stratton
Meets: M-F Noon to 1:30 pm
CAS 438
Prerequisite: 3250:200 or equivalent

2. The University of Akron
Administration
3 graded assignments this week
Homework 01
Homework 02
CBT Test 01 (Friday - Monday)
6 graded assignments next week
Homework 03, 04, 05, 06
Essay 01
CBT Test 02 (Friday - Monday)
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Decision Tree

3. Decision Tree Focus on student questions Worksheet 02
World market and trade
Trade Restrictions
Discussion questions

4. The University of Akron
Student Questions
In your group
Share at least one question you have from chapter 19 or the worksheet.
Compare questions
Are any in common? If so, list
Can group members help?
List common unanswered questions
Share common questions
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5. Decision Tree Focus on student questions Worksheet 02
World market and trade
Trade Restrictions
Discussion questions

6. Introduction Multiple Choice questions Magic Empire Akropolis Trade
Worksheet 02
Introduction
Multiple Choice questions
Magic Empire
Akropolis
Trade

7. The University of Akron
Introduction
Using PPF and Voluntary Exchange to understand International Trade
Definition of PPF
Assumptions
Interpretation
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8. The University of Akron
PPF - Definition
Definition of a Production Possibilities Frontier
Individually in 10 words or less write short definition
Boundary between attainable and unattainable production bundles
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9. The University of Akron
PPF - Assumptions
What assumptions do we make?
Assumptions
Fixed resources (factors of production quantities)
Fixed technology
Alternative uses
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10. Introduction Multiple Choice questions Magic Empire Akropolis Trade
Worksheet 02
Introduction
Multiple Choice questions
Magic Empire
Akropolis
Trade

11. The University of Akron
Worksheet 02 – MC Q1
If a nation imports a good that can be produced domestically, the domestic market price of the good
A. increases.
B. decreases.
C. remains constant.
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12. The University of Akron
Worksheet 02 – MC Q2
Arkopolis can use all its resources to produce 50 videos or 250 shoes. Shoes currently cost $50 per pair. Assuming constant opportunity cost, the opportunity cost of producing a video is
A. 5 shoes.
B. 1/5 of a shoe.
C. $50.
D. $20.
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13. The University of Akron
Worksheet 02 – MC Q3
With international trade, the maximum combination of goods a country can consume lays
A. inside its PPF.
B. outside its PPF.
C. on its PPF.
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14. The University of Akron
Worksheet 02 – MC Q4
A tariff is a
A. tax imposed on an exported good.
B. tax imposed on an imported good.
C. limit imposed limiting the amount of a good that can be exported.
D. limit imposed limiting the amount of a good that can be imported
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15. The University of Akron
Worksheet 02 – MC Q5
Of the following, who gains with a tariff?
A. domestic buyers of the good or service
B. the importer of the good or service
C. the foreign exporter of the good or service
D. the government of the importing nation
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16. Introduction Multiple Choice questions Magic Empire Akropolis Trade
Worksheet 02
Introduction
Multiple Choice questions
Magic Empire
Akropolis
Trade

17. Worksheet 02 – Magic Empire
Grain
Automobiles 20 18 10 16 15 14 19 12 23 25 8 27 6 28 4 29 2
29.5 30
Magic Empire
Max grain = 20 billion bushels
Max autos = 30 million units
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18. Worksheet 02 – Magic Empire
Max grain = 20 billion bushels
Max autos = 30 million units
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19. Worksheet 02 – Magic Empire
Grain
Automobiles 20 18 10 16 15 14 19 12 23 25 8 27 6 28 4 29 2
29.5 30
Magic Empire
Opportunity cost of first 10 mil cars = 2 billion bushels sacrificed
Or 200 bushels per car
Opportunity cost of next 5 mil cars = 2 billion bushels sacrificed
Or 400 bushels per car
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20. Worksheet 02 – Magic Empire
How can you tell the Magic Empire faces increasing opportunity costs for cars?
As we go from 0 to 30 million cars the amount of grain that must be sacrificed increases.
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21. Worksheet 02 – Magic Empire
Grain
Automobiles 20 18 10 16 15 14 19 12 23 25 8 27 6 28 4 29 2
29.5 30
Magic Empire
Beyond 15 million cars, Magic Empire continues to get fewer cars fro each bushel of grain sacrificed. Thus Opportunity cost for each addition car increases.
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22. Worksheet 02 – Magic Empire
How do we show increasing costs?
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23. Worksheet 02 – Magic Empire
At the current production (no trade) of 18 billion bushels of grain and 10 million cars, what is the opportunity cost of producing 1 more car?
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24. Worksheet 02 – Magic Empire
Grain
Automobiles 20 18 10 16 15 14 19 12 23 25 8 27 6 28 4 29 2
29.5 30
Magic Empire
Current production
Opportunity cost of first 10 mil cars = 200 bushels per car
Opportunity cost of next 5 mil cars = 400 bushels per car
So the 10 mil + 1 car’s opportunity cost is between 200 and 400 bushels of grain
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25. Worksheet 02 – Magic Empire
~250 bushels per car
Current production
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26. Introduction Multiple Choice questions Magic Empire Akropolis Trade
Worksheet 02
Introduction
Multiple Choice questions
Magic Empire
Akropolis
Trade

27. The University of Akron
Worksheet 02 – Akropolis
8 - To have an absolute advantage in grain, Akropolis must be able to produce more grain than Magic Empire
Thus it must be able to produce more than 20 billion bushels of grain.
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28. The University of Akron
Worksheet 02 – Akropolis
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29. The University of Akron
Worksheet 02 – Akropolis
9 – Does Akropolis have a comparative advantage in the production of grain?
Depends on where they are producing
At levels of more than ~28 billion bushels of grain (less than ~8 million cars) it will.
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30. Empire’s current production
Worksheet 02 – Akropolis
~1/250 cars per bushel
Empire’s current production
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31. Introduction Multiple Choice questions Magic Empire Akropolis Trade
Worksheet 02
Introduction
Multiple Choice questions
Magic Empire
Akropolis
Trade

32. Worksheet 02 – Magic Empire
10 – If the world price of a car is 2000 bushels of grain, optimal production for Magic empire is?
Depends on where they are producing
At levels of more than ~28 billion bushels of grain (less than ~8 million cars) it will.
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33. Worksheet 02 – Magic Empire
~2000 bushels per car M*
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34. Worksheet 02 – Magic Empire
11 – Can both the Magic Empire and Akropolis benefit from trade?
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35. Worksheet 02 – Magic Empire
~2000 bushels per car
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36. Introduction Multiple Choice questions Magic Empire Akropolis Trade
Worksheet 02
Introduction
Multiple Choice questions
Magic Empire
Akropolis
Trade

37. Decision Tree Focus on student questions Worksheet 02
World market and trade
Trade Restrictions
Discussion questions

38. Domestic demand and supply Export Import Restrictions
World market and trade
Domestic demand and supply
Export
Import
Restrictions

39. The University of Akron
No trade
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40. The University of Akron
No trade
Consumer Surplus
Producer Surplus
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41. The University of Akron
Export
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42. The University of Akron
Import
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43. The University of Akron
Import
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44. Decision Tree Focus on student questions Worksheet 02
World market and trade
Trade Restrictions
Discussion questions

45. The University of Akron
Trade restrictions
Determine Consumer Surplus
Determine Producer Surplus
Restrictions and the loss of Consumer and Producer Surplus
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46. The University of Akron
No Trade
Consumer Surplus
Producer Surplus
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47. The University of Akron
Import
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48. The University of Akron
Import
Consumer Surplus
No Domestic Production = No Producer Surplus
Revenue to foreign firms
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49. The University of Akron
Tariff
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50. The University of Akron
Tariff
Consumer Surplus
Revenue to Government
Dead Weight Loss
Domestic Revenue ?
Foreign Revenue
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51. The University of Akron
Quota
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52. Do Tariffs and Quotas have the same impact?
In this example, the tariff and quota each resulted in the same
the domestic price
domestic production
quantity of imports
Thus the results are the same.
True/False; Explain
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53. Do Tariffs and Quotas have the same impact?
Determine
Consumer Surplus
Revenue to domestic firms
Domestic firms’ producer surplus
Revenue to foreign firms
Revenue to government
Dead weight loss
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54. The University of Akron
Quota
Consumer Surplus
Dead Weight Loss
Domestic Revenue
Foreign Revenue
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55. The University of Akron
Restraint of Trade
Choose a protectionist policy
Steel tariffs
Restriction on importation of Beef
Trade with Latin America (NAFTA)
Immigration Policy
Your choice
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56. The University of Akron
Restraint of Trade
Arguments in favor of the restriction
Arguments against the restriction
Debate
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57. The University of Akron
Restraint of Trade
National Security
Infant industry
Dumping
Saves Jobs
Competition with cheap labor
Brings diversity & stability
Lax environmental standards
Protect national culture
Prevents exploitation
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58. The University of Akron
Restraint of Trade
The reasoning that supports the argument for protection
The reasoning provided by the author against the argument
Your rebuttal to the author’s reasoning.
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59. Decision Tree Focus on student questions Worksheet 02
World market and trade
Trade Restrictions
Discussion questions

60. The University of Akron
Discussion Question 1
Consider the following quote from a website maintained by the Emergency Steel Scrap Coalition, a lobbying organization formed in the fall of 2003 by a group of firms in the United States
U.S. scrap processing and consuming industries are facing a steel scrap export crisis. Scrap exports from the United States have doubled since 2000, rising from 6.3 million tons in 2000 to approximately 12 million tons in  . . This sharp increase in steel scrap exports has caused U.S. steel scrap prices to surge to unprecedented levels, and has led to serious and growing concerns about scrap unavailability . . . These sharp price increases and the potential for scrap shortages are having significant, harmful effects on important manufacturing sectors of the U.S. economy.
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61. The University of Akron
Discussion Question 1
What policy would you expect this group to recommend for dealing with the "steel scrap export crisis"?
What types of firms would you expect to be members of this coalition?
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62. The University of Akron
Discussion Question 2
Some firms in the United States now outsource computer-programming tasks. They hire programmers in countries such as India to do work formerly done by programmers living in the United States.
Supporters of outsourcing argue (correctly) that as long as the government follows a macroeconomic policy that keeps the economy at full employment, outsourcing will not lead to higher unemployment among computer programmers living in the United States.
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63. The University of Akron
Discussion Question 2
Why might programmers living in the United States still be opposed to outsourcing? Think about the supply and demand for programmers in the United States. How might outsourcing affect wages?
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64. Decision Tree Focus on student questions Worksheet 02
World market and trade
Trade Restrictions
Discussion questions