Trading With Other Nations Standard 3.2.1

1. Trading With Other NationsStandard 3.2.1

2. Bellwork • What is the best trade you ever made. Explain why people trade and what might be the positives/negatives of doing so.

3. Bellwork • What is a skill or ability that you have that is rare or difficult for most other to do? Explain

4. Essential Question: • How does absolute and comparative advantage explain why certain goods or services are produced in a particular nation, region, or locale?

5. Absolute Advantage: the ability of a country to produce a product with fewer resources than another country. A country with an abs. advantage can produce more output per unit than another country. • Specialization: a nation should produce and export a limited assortment of goods for which it is best suited in order to use its resources most efficiently

6. Comparative Advantage: refers to the ability of a person or country to produce a product at a lower opportunity cost than another person or country.

7. Oranges could be grown in Michigan, with the use of greenhouses, BUT! it would be very costly and wasteful of Michigan's limited resources. • We can then say that Florida has a comparative advantage in oranges, while Michigan has a comparative advantage, because of climate and soil, in the growing of cherries.

8. Comparative and Absolute AdvantageEconomics in 60 Seconds • http://www.youtube.com/watch?v=38hvvAzgXZY

9. Notetaker • Write on the following note taker to help you make sense of the fractions involved with analyzing comparative advantage

10. Sample Problem 1 • Who has absolute advantage in cars? • United States • Who has absolute advantage in computers? • Japan

11. Sample Problem 2 • Who has comparative advantage in computers? • Japan has comparative advantage in computers because they only have to give up 5/3rds of a car versus the U.S. who has to give up 3 cars to make 1 computer • HINT: always put the item asked about in the denominator United States’ opportunity cost of computers: 12 3 ----- = ----- = 3 cars 4 1 Japan’s opportunity cost of computers: 10 5 ---- = ----- = 5/3rds of a car 6 3

12. Sample Problem 3 • Who has comparative advantage in cars? • United States has the comparative advantage because they only have to give up 1/3rd of a computer versus 3/5ths that Japan has to give up United States’ opportunity cost of computers: 4 1 ----- = ----- = 1/3rd of a computer 12 3 Japan’s opportunity cost of computers: 6 3 ---- = ----- = 3/5th of a computer 10 5

13. Sample 4 • Who has absolute advantage in bananas? • Who has absolute advantage in rice?

14. Sample 5 • Who has absolute advantage in bananas? • Neither-both produce 10 bananas • Who has absolute advantage in rice? • Fiji has absolute advantage

15. Your Turn 1 • Who has comparative advantage in bananas? Explain. • China • China only gives up 1/5 rice whereas Fiji has to give up 1/2 rice Fiji’s opportunity cost of bananas: 5 1 ----- = ----- = 1/2 rice 10 2 China’s opportunity cost of bananas: 2 1 ---- = ----- = 1/5 rice 10 5

16. Your Turn 2 • Who has comparative advantage in rice? Explain. • Fiji • Fiji only has to give up 2 bananas whereas China has to give up 5 bananas Fiji’s opportunity cost of rice: 10 2 ----- = ----- = 2 bananas 5 1 China’s opportunity cost of rice: 10 5 ---- = ----- = 5 bananas 2 1

17. Objectives • Content Objective: I can explain how Absolute and Comparative Advantage are used to decide what to produce • Language Objective: I can read and verbally discuss how Absolute and Comparative Advantage are used to decide what to produce • HW: • Comparative/Absolute Advantage Numbers Assignment • One Page Economics Reading: It’s a Small World…

18. Do Now • Describe Comparative Advantage • Describe Absolute Advantage

19. Trade Simulation

20. Mutual Trade Benefits All Parties • Comparative advantage leads to gains from trade, including lower prices, higher quality goods or services, and more choices. • Money from the sale of goods and services traded can be used to purchase goods and services that cannot be produced efficiently.

21. The Final Point • The decision to produce a particular good or service is dependent on the opportunity costs of available resources.

22. Restrictions on World TradeStandard 3.2.2

23. Trade • imports:goods bought from other countries for domestic (home) use • exports:goods sold to other countries

24. Essential Question • Explain the impacts of trade policies on domestic (home) markets and world trade

26. 1. Tariffs • Tariff:tax placed on an imported product • Protective Tariff:protects domestic (home) producersused to raise the cost of imported goods • This makes foreign products more expensive • http://www.investopedia.com/video/play/tariffs/

27. More restrictions… • Import Quota:restriction imposed on the number of units of a particular good that can be brought into the country • Embargo:complete restriction on the import or export of a particular good or goods going to or coming from a specific country

29. What are the impacts of these trade policies on domestic markets and world trade? • U.S. tariffs on imported sugar have restricted trade in sugar and increased sugar prices for American consumers while protecting U.S. sugar and corn producers. • https://www.youtube.com/watch?v=Hb2W98EzK2M

30. 2. Monetary Policy • Monetary Policy: refers to a nation’s central bank to control its money supply. They do this through establishing an interest rate • Interest Rate: price the bank chargers a user for a loan • High interest rate = strong dollar • Low interest rate = weak dollar

31. 3. Exchange Rates • Exchange Rate: the price of one nation’s currency compared to another nation’s • Weak dollar makes U.S exports cheaper but imports more expensive • Strong dollar makes imports cheaper but U.S. goods more expensive to export

32. Objective / HW • Content Objective: I can explain the impact of trade policies (monetary policy, exchange rates, interest rates) on domestic markets and world trade • Language Objective: I can verbally discuss and read about the impact of trade policies • HW: • Page One Econ Reading • Exchange Rate Web Activity & Problem Solving

33. Bellwork • Identify and describe the 3 different type of trade barriers

34. Taxes Benefits and Consequences • Standard 2.2.3

35. Three Essential Questions About Taxes What is being taxed? What is the rate of the tax? How does it affect taxpayers?

36. WHAT DOES EVERY TAX HAVE? • Tax base: What is being taxed? • Income • Property • Consumption • Tax rate: How is the amount determined? • Flat • Percentage

37. How does the tax rate effect taxpayers? • Proportional • Regressive • Progressive

38. Proportional Taxes • Takes the same percentage or amount from both high and low income tax payers • Examples: • Michigan income tax - all are taxed on their income at the same percentage (4.35%) • Social Security Taxes (up to the limit): Everyone (employer and employee each) pays 6.2% up to $106,800

39. Regressive Taxes • Takes a larger share of income from low income taxpayers than from high income taxpayers • Examples (consumption taxes): • Sales tax- if an individual buys a new appliance and pays $40 in sales tax, this $40 tax affect someone with a lower income more than one with a higher income (6.00%) • Gasoline tax – everyone pays the same percentage but it ends up taking a greater percentage of one’s income from the lower income earners than higher income earners

40. Progressive Taxes • Takes a larger share of the income of high-income taxpayers than of low-income taxpayers. • Higher income levels are taxed at higher rates • Examples: • Federal individual income tax - the higher the income, the higher the tax rate • Brackets include 10% up to $8,375; 15% up to $34,000; 25% up to $82,400; 28% up to $171,850; 33% up to $373,650, 35% beyond $373,650 (single rates) • Corporate income tax rates

42. Types of Government Taxes

43. What does this tell you?

44. State Taxes • Explain how the chart shows that the sales and excise tax is regressive? • What questions does this graph raise for you?

45. Michigan Taxes

46. Local Taxes Property Tax- assessed each year to indicate home value It is a proportional tax based on value of home Also based partly on community vote for mileage (police, education, infrastructure, etc.) Utility Payments

47. Criteria for Evaluating Taxes • Ability to Pay:People should be able to afford to pay the tax. • Equity:A tax should have vertical and horizontal equity. • Vertical - People with different amounts of income should pay different amounts of taxes. • Horizontal – People with the same amount of income should pay the same amount of taxes. • Benefits Received:Those who received more benefits should pay more than those who receive less. • Efficiency:Thetax should not inhibit productive activities; nor should it discourage people from working or investing in new capital or businesses. It also should not encourage individuals to be wasteful in buying goods. • Simplicity:The tax should be simple to administer and follow. The rationale for the tax should be generally agreeable and justifiable. Loopholes and exemptions should be minimized.

48. Objective / HW • HW: Evaluating Taxes Assignment (Comp)

49. Table Partners: Pick the top 5 for where would you want your tax dollars to go. Be prepared to explain your reasoning. • Education • National Parks • Food and Agriculture • Energy and Environment • Science • Transportation • Foreign Aid • Prisons • Food Stamps • Military/ Defense/ Veterans • Social Security • Medicaid/ Medicare

50. Questions • Why did you prioritize your top 5 areas over others? • Were there areas you wanted to include but couldn’t? • Have you heard discussion about taxes on the news or at home? What have you heard?