1. WHY DO NATIONS TRADE?

2. TOTAL NATIONAL WELFARE IS INCREASED THROUGH TRADING ACTIVITIES.

3. COMPARATIVE ADVANTAGE. PRODUCE WHAT YOU PRODUCE WELL AND TRADE IT FOR THINGS YOU DO NOT PRODUCE WELL.

4. COST OF PRODUCTION PRICE OF OUTPUT

5. COMPARATIVE ADVANTAGE DETERMINED BY FOUR FACTORS.

6. NATURAL RESOURCE BASE

7. COMPARATIVE ADVANTAGE DETERMINED BY FOUR FACTORS. NATURAL RESOURCE BASE LOCATION RELATIVE TO MARKETS

8. COMPARATIVE ADVANTAGE DETERMINED BY FOUR FACTORS. NATURAL RESOURCE BASE LOCATION RELATIVE TO MARKETS PRODUCTION EFFICIENCIES (INPUT/OUTPUT)

9. COMPARATIVE ADVANTAGE DETERMINED BY FOUR FACTORS. NATURAL RESOURCE BASE LOCATION RELATIVE TO MARKETS PRODUCTION EFFICIENCIES (INPUT/OUTPUT) TRADE POLICIES TARIFFS - EXCHANGE RATES

10. Why trade takes place?

11. price quantity S D

12. price quantity price quantity A B S S D D

13. why trade takes place. price quantity price quantity A B WORLD PRICE D D S S

14. why trade takes place. price quantity price quantity A B WORLD PRICE EXPORT IMPORT D D S S

15. SIMPLE TWO COUNTRY /TWO PRODUCT MODEL -- FRANCE AND THE U.S.A.

16. TWO PRODUCTS ARE WINE AND CORN THE ONLY INPUT IS LABOR

17. IF ONE MAN-DAY OF LABOR IS USED TO PRODUCE CORN IN THE UNITED STATES HE CAN PRODUCE 60 BUSHELS (6 UNITS). IF THE SAME MAN-DAY IS USED TO PRODUCE WINE, HE CAN PRODUCE 2 CASKS (2 UNITS).

18. THUS ONE CASK OF WINE EXCHANGES FOR 3 UNITS OF CORN.

19. IN FRANCE ONE MAN-DAY OF LABOR WILL PRODUCE ONLY 20 BUSHELS OF CORN (2 UNITS). ONE MAN-DAY OF LABOR WILL PRODUCE ONLY 1 CASK OF WINE.

20. IN FRANCE ONE CASK OF WINE EXCHANGES FOR TWO UNITS OF CORN.

21. WILL TRADE TAKE PLACE? YES! IF FRANCE SENDS THE U.S.A. ONE CASK OF WINE, U.S. PRODUCERS WILL BE WILLING TO SHIP THEM 3 UNITS OF CORN. MORE THAN THE FRENCH COULD PRODUCE AT HOME FOR THE LABOR RELEASED FROM PRODUCING THE CASK OF WINE.

22. I F THE U.S. SENDS TWO UNITS OF CORN TO FRANCE, THEY WILL BE WILLING TO SEND A CASK OF WINE TO THE UNITED STATES.

23. THE TECHNICAL RATIOS ARE: 1 CASK : 3 UNITS (U.S.A.) 1 CASK : 2 UNITS (FRANCE) AN EXCHANGE RATIO BETWEEN THESE RATIOS, SUCH AS 1 CASK : 2.5 UNITS REPRESENTS A PROFITABLE EXCHANGE.

24. HOW TRADE IS RESTRICTED

25. TARIFFS - TAX ON THE IMPORT OF GOODS

26. HOW TRADE IS RESTRICTED QUOTA - A QUANTITATIVE RESTRICTION

27. HOW TRADE IS RESTRICTED EMBARGO -- USUALLY DONE FOR POLITICAL REASONS

28. HOW TRADE IS RESTRICTED -- HEALTH REGULATIONS

29. REASONS FOR PROTECTION PROTECT A NEW INDUSTRY WE MUST PROTECT AN INEFFICIENT "INFANT INDUSTRY" NOW BUT IT WILL EVENTUALLY BECOME EFFICIENT

30. REASONS FOR PROTECTION l NATIONAL SECURITY l WE NEED TO PROTECT OUR STEEL INDUSTRY BECAUSE IT MAY BE VITAL FOR OUR NATIONAL DEFENSE

31. REASONS FOR PROTECTION l PROTECT THE NATIONAL HEALTH l WE CAN NOT LET AMERICAN APPLES IN BECAUSE THEY HAVE BEEN CONTAMINATED BY PESTICIDES

32. REASONS FOR PROTECTION l PROTECT AGAINST UNFAIR TRADE POLICY l COUNTRIES ARE "DUMPING" THEIR PRODUCT INTO OUR MARKETS TO FORCE OUR PRODUCERS OUT OF BUSINESS.

33. REASONS FOR PROTECTION l PROTECT DOMESTIC PROGRAMS l SOMETIMES A GOVERNMENT WILL SUPPORT DOMESTIC PRODUCERS AT ARTIFICIALLY HIGH PRICES. IMPORT RESTRICTIONS MUST BE IN PLACE SO OUTSIDERS CAN NOT TAKE ADVANTAGE OF THOSE HIGH PRICES.

34. REASONS FOR PROTECTION l PROTECT BALANCE OF PAYMENTS l WHEN A NATION'S PAYMENTS TO FOREIGNERS EXCEEDS ITS EARNINGS FOR THEM, IT HAS A PROBLEM. THIS CAN RESULT IN A CURRENCY DEVALUATION. l REDUCE IMPORTS -- REDUCE THE IMBALANCE OF PAYMENTS

35. REASONS FOR PROTECTION l PROVIDE REVENUE

36. REASONS FOR PROTECTION l PROTECT AGAINST PAINFUL ECONOMIC ADJUSTMENT