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Chapter 9 part 1 International Trade

Chapter 9 part 1 International Trade. These slides supplement the textbook, but should not replace reading the textbook. Why trade with other nations?. All nations can increase productivity, lower prices, increase jobs and standard of living. Why is trade advantageous for all countries?.

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Chapter 9 part 1 International Trade

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

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

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

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

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

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

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

  8. What are key imports? • Manufacturedconsumer goods • Capital goods • Oil • Metals

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

  10. What are theterms of trade? • How much of one good exchanges for a unit of another good

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

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

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

  14. Which country do we trade the most with? • Canada

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

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

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

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

  19. What is absolute advantage? • Producing something better than others

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

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

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

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

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

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

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

  27. Why havetrade restrictions? • There are good and bad reasons for trade restrictions

  28. How do werestrict trade? • tariffs • import quotas • export subsidies • licensing agreement • unreasonable standards

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

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

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

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

  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. What isexport promotion? • A development strategy that concentrates on producing for the export market

  40. What is theGeneral Agreement on Tariffs & Trade (GATT)? • Treat all nations equally • Reduce tariff rates • Reduce import quotas

  41. When was GATT formed and how big is it? • 1947 and there are presently 123 participating countries

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

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

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

  45. END

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