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ECONOMICS PORTFOLIO        Section 4      Deepak Parwani
FREE TRADE                                isInternational Trade that takes place without any barriers, such as            ...
FREE TRADE OF ONIONPrice of Onion                                          S (Domestic)                 Pe                ...
FREE TRADE OF ONIONPrior to the country opening to trade, onions were sold locallyat the price of Pe. Once the country ope...
TARIFF ON ONION IMPORTS                                                           S (Domestic)Price of Onion              ...
TARIFF ON ONION IMPORTSAfter a tariff has been implemented on imports, the price ofinternational onions increase to Pw+tar...
QUOTASQuotas are an import barrier that set upper limits on thequantity or value of imports that may be imported into acou...
QUOTAS ON ONION IMPORTS                                                              S (Domestic)   Price of Onion        ...
DOMESTIC SUBSIDY ON RICE                                                     S (Domestic)             Price of Onion      ...
DOMESTIC SUBSIDY ON RICEA subsidy is an amount of money paid by the government toa firm, per unit of output to encourage ou...
FACTOR ENDOWMENTSFactors of production that a country has available to producegoods and servicesEg. Japan has highly skill...
ABSOLUTE ADVANTAGEThe capability to produce a particular good with fewer resourcesthan other competing countriesCOMPARATIV...
PRODUCTION POSSIBILITY CURVE       FOR INDIA AND CHINAPairs of Shoes                 12                 5                 ...
VOLUNTARY EXPORTS         RESTRAINTS Voluntary agreement between an exporting country and an importing country that limits...
WORLD TRADE         ORGANIZATIONAlso known as the WTO, is an international body that sets therules for global trading and ...
CUSTOMS UNIONIs an agreement made between countries to trade freely amongthemselves, but adopt common external barriers ag...
ECONOMIC INTEGRATIONThe capability to produce a particular good with fewer resourcesthan other competing countries        ...
FREE TRADE AREAExists when an agreement is made between countries, where thecountries agree to trade freely among the memb...
BALANCE OF PAYMENTSRecord of the value of all the transactions between theresidents of a country with the residents of all...
CURRENT ACCOUNT  The current account surplus exists where the revenue from  the export of goods and services and income flo...
MARSHALL-LERNER            CONDITIONPED of Exports + PED of imports > 1This condition states that a depreciation, or deval...
J-CURVEThis theory suggests that in the short term, even if theMarshall-Lerner condition is fulfilled, a fall in the value ...
J-CURVECurrent Account    Balance      +      0                            Time      -
EXCHANGE RATESAn exchange rate is the value of one currency expressed interms of anotherEg. $1 = ¥82.875
FLOATING EXCHANGE RATE        SYSTEMMarket forces, supply and demand, determine the exchangerateEg. US
FLOATING EXCHANGE RATE         SYSTEMPrice of Yen                    Sexpressed in  terms of   Dollars           P       E...
MANAGED EXCHANGE RATESIs an exchange rate regime where the value of a currency isgenerally allowed to float but governments...
FIXED EXCHANGE RATEGovernments intervention to maintain a fixed exchange rateEg. Prior China
FIXED EXCHANGE RATE                DEVALUATED                                                           SPrice of Yen expr...
FIXED EXCHANGE RATES                SURPLUS                              Surplus               SPrice of Yen expressed in ...
APPRECIATIONIncrease in the value of one currency in terms of anothercurrency in a floating exchange rate systemEg. Yuan
INCREASE IN DEMAND                                             SPrice of Yen expressed in terms of Dollars                ...
DECREASE IN SUPPLY                                      S2                                             S1Price of Yen expr...
DEPRECIATIONDecrease in the value of one currency in terms of anothercurrency in a floating exchange rate systemEg. U.S. Do...
DECREASE IN DEMAND                                             SPrice of Yen expressed in terms of Dollars                ...
INCREASE IN SUPPLY                                         S1Price of Yen expressed in terms of Dollars                   ...
DEVALUATIONDecrease in the value of a currency in a fixed exchange ratesystem
DEVALUATION                                                  SPrice of Yen expressed in terms of Dollars                  ...
REVALUATIONIncrease in the value of a currency in a fixed exchange ratesystemEg. The U.S. accuses the Chinese of consistent...
REVALUATION                                Surplus           SPrice of Yen expressed in terms of Dollars                  ...
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Economics Portfolio

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Economics Portfolio

  1. 1. ECONOMICS PORTFOLIO Section 4 Deepak Parwani
  2. 2. FREE TRADE isInternational Trade that takes place without any barriers, such as tariffs, quotas or subsidies PROTECTIONISM is The presence of intrusions (subsidies) or barriers (tariffs and quotas)in the flow of goods and services between countries
  3. 3. FREE TRADE OF ONIONPrice of Onion S (Domestic) Pe Pw S (world) D Q1 Qe Q2 Quantity of onion
  4. 4. FREE TRADE OF ONIONPrior to the country opening to trade, onions were sold locallyat the price of Pe. Once the country opened its self tointernational trade, the price of onion drops as a result of theimported supply of corn.
  5. 5. TARIFF ON ONION IMPORTS S (Domestic)Price of Onion Pe Pw + tariff S (world) + tariff Pw S (world) Deadweight loss D Government Revenue Q1 Q3 Qe Q4 Q2 Quantity of onion
  6. 6. TARIFF ON ONION IMPORTSAfter a tariff has been implemented on imports, the price ofinternational onions increase to Pw+tariff. The domesticmarket increases from Q1 to Q3 while imports shrink fromQ1Q2 to Q3Q2. The result of the import barrier is toprotect domestic industries and to generate governmentrevenue, which is delineated as the gray rectangle in diagram.
  7. 7. QUOTASQuotas are an import barrier that set upper limits on thequantity or value of imports that may be imported into acountry. Eg. India
  8. 8. QUOTAS ON ONION IMPORTS S (Domestic) Price of Onion Pe Pw + tariff S (world) + tariff Pw S (world) Deadweight loss DGovernment Revenue Q1 Q3 Qe Q4 Q2 Quantity of onions
  9. 9. DOMESTIC SUBSIDY ON RICE S (Domestic) Price of Onion S (Domestic) + Subsidy Pe Pw S (world) DGovernment Cost Q1 Q3 Q2 Quantity of onion
  10. 10. DOMESTIC SUBSIDY ON RICEA subsidy is an amount of money paid by the government toa firm, per unit of output to encourage output, and to providean advantage over foreign competitors. Though prices toconsumer remain the same, the domestic market increasesfrom Q1 to Q3 whereas imports shrink from Q1Q2 toQ3Q2.
  11. 11. FACTOR ENDOWMENTSFactors of production that a country has available to producegoods and servicesEg. Japan has highly skilled workersChina has land SPECIALIZATIONCountry specializes in the production of goods and serviceswhere they have a comparative advantage in production
  12. 12. ABSOLUTE ADVANTAGEThe capability to produce a particular good with fewer resourcesthan other competing countriesCOMPARATIVE ADVANTAGEThe capability to produce a good at a lower opportunity costthan other countries
  13. 13. PRODUCTION POSSIBILITY CURVE FOR INDIA AND CHINAPairs of Shoes 12 5 2 3 Meter of Cloth
  14. 14. VOLUNTARY EXPORTS RESTRAINTS Voluntary agreement between an exporting country and an importing country that limits the volume of trade in a product Eg. Japan exports limited quantity of cars to the USDUMPING & ANTI-DUMPING Dumping is the selling of a good in another country at a price below its cost of production Anti-Dumping is a legislation to protect an economy against the import of a good at a price below its cost of production
  15. 15. WORLD TRADE ORGANIZATIONAlso known as the WTO, is an international body that sets therules for global trading and resolves disputes between itsmember countries. It also hosts negotiations concerning thereduction of trade barriers between its member nations
  16. 16. CUSTOMS UNIONIs an agreement made between countries to trade freely amongthemselves, but adopt common external barriers against othercountries who attempt to import into the customs unionEg. Switzerland - Liechtenstein customs union COMMON MARKETIs a custom unions with common polices on product regulation,and the free movement of goods, services, capital, and laborEg. The European Union
  17. 17. ECONOMIC INTEGRATIONThe capability to produce a particular good with fewer resourcesthan other competing countries GLOBALIZATIONThe capability to produce a good at a lower opportunity costthan other countries
  18. 18. FREE TRADE AREAExists when an agreement is made between countries, where thecountries agree to trade freely among the members of the group,but are able to trade with countries outside the free trade area inwhatever ways they wishEg. North American Free Trade Agreement between the U.S.Canada and Mexico TRADING BLOCKSCountries agree to trade and cooperateEg. EU and ACP
  19. 19. BALANCE OF PAYMENTSRecord of the value of all the transactions between theresidents of a country with the residents of all other countriesover a given time periodCurrent account + capital account
  20. 20. CURRENT ACCOUNT The current account surplus exists where the revenue from the export of goods and services and income flows is greater than expenditure on the import of goods and services and income flows over a given time period.The current account deficit exists where revenue from theexport of goods and services and income flows is less than theexpenditure on the import of goods and services and incomeflows over a given time period.
  21. 21. MARSHALL-LERNER CONDITIONPED of Exports + PED of imports > 1This condition states that a depreciation, or devaluation, of acurrency will only lead to an improvement in the currentaccount balance if the elasticity of demand for exports plusthe elasticity of demand for imports is greater than one.
  22. 22. J-CURVEThis theory suggests that in the short term, even if theMarshall-Lerner condition is fulfilled, a fall in the value of thecurrency will lead to a worsening of the current accountdeficit, before things improve in the long term
  23. 23. J-CURVECurrent Account Balance + 0 Time -
  24. 24. EXCHANGE RATESAn exchange rate is the value of one currency expressed interms of anotherEg. $1 = ¥82.875
  25. 25. FLOATING EXCHANGE RATE SYSTEMMarket forces, supply and demand, determine the exchangerateEg. US
  26. 26. FLOATING EXCHANGE RATE SYSTEMPrice of Yen Sexpressed in terms of Dollars P EP D Q Quantity of Yen
  27. 27. MANAGED EXCHANGE RATESIs an exchange rate regime where the value of a currency isgenerally allowed to float but governments intervene to avoidsudden fluctuationsEg. China
  28. 28. FIXED EXCHANGE RATEGovernments intervention to maintain a fixed exchange rateEg. Prior China
  29. 29. FIXED EXCHANGE RATE DEVALUATED SPrice of Yen expressed in terms of Dollars Pe EP Fixed Exchange Rate P1 D Shortage Q1 Qe Q2 Quantity of Yen
  30. 30. FIXED EXCHANGE RATES SURPLUS Surplus SPrice of Yen expressed in terms of Dollars P1 Fixed Exchange Rate Pe EP D Q1 Qe Q2 Quantity of Yen
  31. 31. APPRECIATIONIncrease in the value of one currency in terms of anothercurrency in a floating exchange rate systemEg. Yuan
  32. 32. INCREASE IN DEMAND SPrice of Yen expressed in terms of Dollars P2 EP2 EP1 P1 D2 D1 Q1 Q2 Quantity of Yen
  33. 33. DECREASE IN SUPPLY S2 S1Price of Yen expressed in terms of Dollars EP2 P2 EP1 P1 D Q2 Q1 Quantity of Yen
  34. 34. DEPRECIATIONDecrease in the value of one currency in terms of anothercurrency in a floating exchange rate systemEg. U.S. Dollars
  35. 35. DECREASE IN DEMAND SPrice of Yen expressed in terms of Dollars P2 EP1 P1 EP2 D1 D2 Q2 Q1 Quantity of Yen
  36. 36. INCREASE IN SUPPLY S1Price of Yen expressed in terms of Dollars S2 P2 EP1 P1 EP2 D Q1 Q2 Quantity of Yen
  37. 37. DEVALUATIONDecrease in the value of a currency in a fixed exchange ratesystem
  38. 38. DEVALUATION SPrice of Yen expressed in terms of Dollars EP Pe P1 Rate #1 P2 Rate #2 D Shortage Q1 Qe Q2 Quantity of Yen
  39. 39. REVALUATIONIncrease in the value of a currency in a fixed exchange ratesystemEg. The U.S. accuses the Chinese of consistently controlling theYuan to possess a low value, therefore it should bereevaluated
  40. 40. REVALUATION Surplus SPrice of Yen expressed in terms of Dollars P1 Rate #2 Rate #1 Pe EP D Q1 Qe Q2 Quantity of Yen

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