WELCOME TO SEMINAR 10March 11, Wed. 10-11 pm ET MT44.docx

WELCOME TO
SEMINAR 10
March 11, Wed. 10-11 pm ET
MT445-01
MANAGERIAL ECONOMICS
INSTRUCTOR: PAUL CHOI, PH.D.
1
LIVE SEMINARS
(Wednesday 10-11 PM ET)
Live Seminar Schedule:
• Live Seminar 1: January 7 (Wednesday 10-11 pm ET)
• Live Seminar 5: February 4 (Wednesday 10-11 pm ET)

• Live Seminar 9: March 4 (Wednesday 10-11 pm ET)
• Live Seminar 10: March 11 (Wednesday 10-11 pm ET)
• It is strongly suggested that you attend the graded seminar at
the regularly scheduled time. If you are unable to attend the
seminar, you can complete the following assignment.
2
UNIT 10 READING
Chapter 9 discusses the United States in the international
economy; comparative advantage in international trade; how
countries gain from international trade; government policies
that restrict international trade; and the argument over trade
policies and globalization.
3
UNIT 10 READING
Chapter 30 discusses exchange rate systems, the current
exchange rate system, and international capital markets.

4
READING: CHAPTER 9
The United States in the International Economy
Tariff: A tax imposed by a government on imports.
Imports: Goods and services bought domestically but produced
in other countries.
Exports: Goods and services produced domestically but sold to
other countries.
5
READING: CHAPTER 9
Comparative Advantage in International Trade
Absolute Advantage: The ability of an individual, a firm, or a
country to produce a good or service at a lower opportunity cost
than competitors.
Comparative Advantage: The ability of an individual, a firm, or
a country to produce a good or service at a lower opportunity
cost than competitors.
Opportunity Cost: The highest valued alternative that must be
given up to engage in an activity.

6
READING: CHAPTER 9
How Countries Gain from International Trade
Autarky: A situation in which a country does not trade with
other countries.
Increasing Consumption through Trade
Terms of Trade: The ratio at which a country can trade its
exports for imports from other countries.
7
READING: CHAPTER 9
Why Don’t We See Complete Specialization?
• Not all goods and services are traded internationally.
• Production of most goods involves increasing opportunity
costs.
• Tastes for products differ.

8
READING: CHAPTER 9
Where Does Comparative Advantage Come From?
• Climate and natural resources.
• Relative abundance of labor and capital.
• Technology.
• External economies.
External economies: Reductions in a firm’s costs that result
from an increase in the size of an industry.
9
READING: CHAPTER 9
Comparative Advantage Over Time: The Rise and Fall – and
Rise – of the U.S. Consumer Electronics Industry
Once a country has lost its comparative advantage in producing
a good, its income will be higher and its economy will be more
efficient if it switches from producing the good to importing it.
10

READING: CHAPTER 9
Government Policies That Restrict International Trade
Quotas and Voluntary Export Restraints
Quota: A numeric limit imposed by a government on the
quantity of a good that can be imported into the country.
Voluntary export restraint (VER): An agreement negotiated
between two countries that places a numeric limit on the
quantity of a good that can be imported by one country from the
other country.
11
READING: CHAPTER 9
Measuring the Economic Effect of the Sugar Quota
We can use the concepts of consumer surplus, producer surplus,
and deadweight loss to measure the economic impact of the
sugar quota.
12
READING: CHAPTER 9

Gains from Unilateral Elimination of Tariffs and Quotas
Some politicians argue that eliminating U.S. tariffs and quotas
would help the U.S. economy only if other countries eliminated
their tariffs and quotas in exchange.
Other Barriers to Trade
In addition to tariffs and quotas, governments sometimes erect
other barriers to trade.
13
READING: CHAPTER 9
The Argument over Trade Policies and Globalization
World Trade Organization (WTO): An international
organization that oversees international trade agreements.
Why Do Some People Oppose the WTO?
Globalization: The process of countries becoming more open to
foreign trade and investment.
Anti-Globalization: Some people believe that free trade and
foreign investment destroy the distinctive cultures of many
countries. Many governments have resisted globalization
proposals.
14

READING: CHAPTER 9
Why Do Some People Oppose the World Trade Organization?
“Old-Fashioned” Protectionism
Protectionism: The use of trade barriers to shield domestic firms
from foreign competition.
Protectionism is usually justified on the basis of one of the
following arguments:
- Saving jobs; Protecting high wages; Protecting infant
industries; Protecting national security
15
READING: CHAPTER 9
Dumping
Dumping: Selling a product for a price below its cost of
production.
Positive versus Normative Analysis ( Once Again)
Positive analysis concerns what is.
Normative analysis concerns what ought to be.
16

READING: CHAPTER 9
Positive versus Normative Analysis ( Once Again)
The success of industries in getting the government to erect
barriers to foreign competition depends partly on some members
of the public knowing full well the costs of trade barriers but
supporting them anyway. However, two other factors are also at
work:
1. The costs tariffs and quotas impose on consumers are large in
total but relatively small per person.
2. The jobs lost to foreign competition are easy to identify, but
the jobs created by foreign trade are less easy to identify.
17
READING: CHAPTER 30
Exchange Rate Systems
Floating currency: The outcome of a country allowing its
currency’s exchange rate to be determined by demand and
supply.
Exchange rate system: An agreement among countries on how
exchange rates should be determined.
18

READING: CHAPTER 30
Exchange Rate System
Managed float exchange rate system: The current exchange rate
system, under which the value of most currencies is determined
by demand and supply, with occasional government
intervention.
Fixed exchange rate system: A system under which countries
agree to keep the exchange rates among their currencies fixed.
19
READING: CHAPTER 30
The Current Exchange Rate System
The Current Exchange Rate System Has Three Important
Aspects:
1. The United States allows the dollar to float against other
major currencies.
2. Most countries in Western Europe have adopted a single
currency, the euro.
Euro: The common currency of many European countries.
3. Some developing countries have attempted to keep their
currencies’ exchange rates fixed against the dollar or another
major currency.

20
READING: CHAPTER 30
What Determines Exchange Rate in the Long Run?
The Theory of Purchasing Power Parity
Purchasing power parity: The theory that in the long run,
exchange rates move to equalize the purchasing powers of
different currencies.
21
READING: CHAPTER 30
The Theory of Purchasing Power Parity
Three real-world complications keep purchasing power parity
from being a complete explanation of exchange rates, even in
the long run:
• Not all products can be traded internationally.
• Products and consumer preferences are different across
countries.
• Countries impose barriers to trade.

22
READING: CHAPTER 30
The Four Determinants of Exchange Rates in the Long Run
• Relative Price Levels.
• Relative Rates of Productivity Growth.
• Preferences for Domestic and Foreign Goods.
• Tariffs and Quotas.
23
READING: CHAPTER 30
Pegging Against the Dollar
A final key aspect of the current exchange rate system is that
some developing countries have attempted to keep their
exchange rates fixed against the dollar or another major
currency.
The East Asian Exchange Rate Crisis of the Late 1990s
Pegging: The decision by a country to keep the exchange rate
fixed between its currency and another currency.

24
READING: CHAPTER 30
Pegging Against the Dollar
The Decline in Pegging
Following the disastrous events experienced by the East Asian
countries, the number of countries with pegged exchange rates
declined sharply. The trend has been toward replacing pegged
exchange rates with managed floating exchange rates.
The Chinese Experience with Pegging
In 1978, China began to move away from central planning and
toward a market system.
25
UNIT 10 DISCUSSION
Topic 1
Globalization is becoming very important in economic
discussions. While some politicians favor protectionist policies
because they feel these policies protect domestic producers,
others claim free trade increases economic activity and has
advantages for the country as a whole. Describe a recent foreign
purchase. Do you think it is better to source from overseas or
should tariffs be in place to protect American industries? Why
or why not?

26
UNIT 10 DISCUSSION
Topic 2
The Economist regularly publishes the Big Mac index to
examine the validity of purchasing power parity. If purchasing
power parity holds, a consumer should be able to take the same
amount of money required to buy a Big Mac in the U.S. and buy
a Big Mac in any other country. What are the reasons
purchasing power parity may not hold? If the U.S. dollar
depreciates against the euro and purchasing power parity holds,
would a Big Mac in Europe become more or less expensive?
Why? If purchasing power parity doesn’t hold, does an
American tourist in Europe pay more or less for a Big Mac?
Why?
re is always debate regarding the structure of the current income
tax system in the U.S. Many opponents of the current system
argue that under its current structure, many wealthy households
are able to avoid taxes and for most households, the tax system
is simply too complicated and confusing. One solution that has
been proposed is the “flat tax.” What are the benefits and
detriments of replacing the current income tax system with a
flat tax system? Who benefits and who might be harmed? What

implications does the flat tax system have for tax preparation
companies such as H&R Block?
27
UNIT 10 ASSIGNMENT
Instructions Summary: Please Read Unit 10 Assignment
Instructions
• Please answer the following questions located in the template
document. Submit the file as a Microsoft Word ® document to
the Dropbox when completed.
28
SEMINAR
Read About Graded Seminars
Attending seminars is important to your academic success. They
(seminars) will allow you to review the important concepts that
are presented in each unit, discuss work issues in your lives that
pertain to these concepts, ask your instructor questions and
allow you to come together in real time with your fellow
classmates.
There will be a seminar in units 1 through 10 in this course.
You must either attend the seminar or complete the Alternative

Seminar Assignment in order to obtain the points for this part of
class.
29
UNIT 10 SEMINAR
Unit 10 Alternative Assignment:
• It is strongly suggested that you attend the graded seminar at
the regularly scheduled time. If you are unable to attend the
seminar, you must complete the following alternative
assignment to earn points for this part of the class.
View this week’s archived Seminar and write a 1 page paper,
double spaced that summarizes the Seminar and what you
learned.
Once completed, submit your alternative assignment to the
Seminar Dropbox.
30
Please review the Discussion Board Participation grading rubric
on your course Syllabus.
This is important information that will ensure that you earn

maximum points. Your professionally written postings should
provide substantive depth that advances the discussion. Also,
please be sure to edit your posts for grammatical errors before
you post.
Unit 10 Discussion
Topic 1
Globalization is becoming very important in economic
discussions. While some politicians favor protectionist policies
because they feel these policies protect domestic producers,
others claim free trade increases economic activity and has
advantages for the country as a whole. Describe a recent foreign
purchase. Do you think it is better to source from overseas or
should tariffs be in place to protect American industries? Why
or why not?
Topic 2
The Economist regularly publishes the Big Mac index to
examine the validity of purchasing power parity. If purchasing
power parity holds, a consumer should be able to take the same
amount of money required to buy a Big Mac in the U.S. and buy
a Big Mac in any other country. What are the reasons
purchasing power parity may not hold? If the U.S. dollar
depreciates against the euro and purchasing power parity holds,
would a Big Mac in Europe become more or less expensive?
Why? If purchasing power parity doesn’t hold, does an
American tourist in Europe pay more or less for a Big Mac?
Why?
[MT445 | Managerial Economics]
Unit 10 Assignment
Student Name:
Please answer the following questions. Submit as a Microsoft
Word® document to the Dropbox when completed.

Compare and contrast the following exchange rate systems:
· fixed exchange rate system
· floating exchange rate system
· pegged exchange rate system
Thoroughly discuss advantages and disadvantages of each
system and explain how exchange rates are determined under
each system.
Using Microsoft Word, your Assignment should be at least 350
words in length, double spaced. Your Assignment should
include a highly developed purpose and viewpoint; it should
also be written in Standard American English and demonstrate
exceptional content, organization, style, and grammar and
mechanics. There should be no evidence of plagiarism. If you
are unsure what constitutes plagiarism, please review the KU
plagiarism policy.
If you use outside sources for this Assignment, they need to be
cited in proper APA format. You can find numerous APA
resources in the KU Writing Center Writing Reference Library
on the Research, Citation, and Plagiarism page.
Directions for Submitting your Assignment
Compose your Assignment in a Microsoft Word ® document
and save it as Username-MT445 Assignment-Unit#.doc
(Example: TAllen- MT445 Assignment-Unit10.doc). Submit
your file by selecting the Unit 10: Assignment Dropbox by the
end of Unit 10.
Unit 10 Assignment
Content and Analysis
Points Possible
Points Earned

each system under fixed exchange rate system.
17
each system under floating exchange rate system.
17
each system under pegged exchange rate system.
17
Meets Length Requirement (350 words).
5
Writing Style, Grammar, and APA Format.
9
Total
65

WELCOME TO SEMINAR 10March 11, Wed. 10-11 pm ET MT44.docx

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