1. Chapter 10 Competition in the Global Marketplace: Should We Protect Ourselves from International Trade? Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2. 10-2 The Controversy Over International Trade The Protectionist Viewpoint  Protect from cheap foreign goods  Balance of Trade and Balance of Payments problems  Protection of Key and Infant Industries  Protection of environment and human rights The Free Trade Viewpoint  Free trade promotes international specialization and division of labor  Since trade is voluntary, it would not take place unless both parties benefited

3. 10-3 The Economics of the Global Marketplace How Trade Takes Place  Define imports  Define exports  Buying a good produced abroad  We must export in order to import/We must import in order to export

4. 10-4 Alpha and Omega’s Production and Consumption Possibilities Bread (million loaves per year) Milk (million gallons per year) Bread (million loaves per year) 100 200 150 100 50 A M B N C A1A1 P 25 P1P1 N1N1 C1C1 AlphaOmega Milk (million gallons per year)

5. 10-5 Limits to Terms of Trade AlphaOmega Bread12 Milk21

6. 10-6 The Principle of Comparative Advantage Comparative Advantage – good the country produces at the lowest opportunity cost Comparative Disadvantage Sources of Comparative Advantage  Resource endowments  State of technology

7. Buying Goods and Services Produced Abroad $50,000 £75,000 10-7

8. 10-8 Exchange Rates Exchange Rate – the rate at which a person can trade the currency of one country for the currency of another.Exchange Rate Appreciation versus Depreciation

9. 10-9 Foreign Exchange Market Pounds per month Dollars per pound D D S S q r

10. 10-10 U.S. International Transactions Transaction TypeDemand for Foreign Currency Supply of Foreign Currency Balance Current Account 1. Goods exported1,148.48 2. Goods imported-1,967.85 3. Net Services119.12 4. Net Investments 233.86 5. Transfers-112.71 Balance on Current Account-579.10 Capital Account 6. Change in U.S. assets abroad-1,289.85 7. Change in foreign assets in the U.S. 2,057.70 Balance on capital account767.85 Totals-3,370.413,559.16-188.75 Statistical Discrepancy-188.75

11. 10-11 International Trade Restrictions Tariffs Import duties Cars per year Dollars $ D D S S S1S1 S1S1 $22,500 $20,000 $17,500 8,00010,000

12. 10-12 International Trade Restrictions Quotas Sugar (tons per year) Dollars $ D D S S $35 $30 $25 7501,000 S1S1 S1S1

13. 10-13 International Trade Restrictions Voluntary Restraint Agreements Embargoes

14. 10-14 Analysis of the Controversy Protection from cheap foreign goods Payments problems  Balance of payments deficit Protection of key and infant industries Protection of environment and human rights Dollars per pound D D S S $1.75 q1q1 $1.50 q2q2 q Pounds per month

15. 10-15 Today’s International Trade Environment World Trade Organization (WTO)  Most-favored-nation  Dispute Settlement Body  Dumping Common Markets  European Union  Custom union  The euro  North American Free Trade Agreement (NAFTA)  Free trade area The Spread of Common Markets

16. 10-16 Dollar Exchange Rates for Selected Foreign Currencies, Spring 2009 source: The Wall Street Journal, February 1, 2009, 87 CurrencyDollarsForeign Currency Unit Argentina0.28691 peso Australia0.63541 dollar Britain1.4491 pound Canada0.81551 dollar China0.14631 yuan Denmark0.17181 kronar European Union1.29851 euro Japan0.01131 yen Mexico0.07131 peso Russia0.03041 ruble Saudi Arabia0.26661 riyal South Africa0.09791 rand South Korea0.0071 won Switzerland0.86511 franc Taiwan0.02971 dollar