Chapter 15 Economics Notes World of Trade
Trade and Its Benefits… <ul><li>Important Trade Concept :  </li></ul><ul><ul><li>Imports come in, Exports go out </li></ul...
Things to Consider… <ul><li>How to buy? </li></ul><ul><ul><li>With International Trade, need to exchange currencies </li><...
Absolute vs. Comparative Advantage <ul><li>Specialization:   “focus on what you are good at” </li></ul><ul><li>Absolute Ad...
Productivity, Wages & Trade <ul><li>A country’s advantage will impact productivity, wages, and trade </li></ul><ul><ul><li...
Productivity and Trade <ul><li>If Americans continue to advance and learn more, they can command higher wages </li></ul><u...
Countries Protect their Own, Because of… <ul><li>National Defense: </li></ul><ul><ul><li>Don’t want to assume that vital t...
Trade Barriers =  Trade Manipulators <ul><li>Tariff:   </li></ul><ul><ul><li>tax on imports that increases price, encourag...
Types of Trade Agreements <ul><li>Free Trade Association (FTA) :  </li></ul><ul><ul><li>Member countries agree to remove b...
Other Trade Agreements <ul><li>European Union (EU) :  Creates economic “United States of Europe” </li></ul><ul><ul><li>Eli...
North American Free Trade Association (NAFTA) 1994 <ul><li>Free Trade between US, Canada, Mexico </li></ul><ul><li>Elimina...
GATT & WTO <ul><li>General Agreement on Tariffs and Trade (GATT), begun 1947 </li></ul><ul><ul><li>130 member countries </...
Final Things to Consider… <ul><li>Exchange Rates :  Have to pay people in local currency.  Value of $ in relation to other...
Upcoming SlideShare
Loading in …5
×

Chapter 15

1,021 views

Published on

Published in: Business, Technology
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,021
On SlideShare
0
From Embeds
0
Number of Embeds
42
Actions
Shares
0
Downloads
0
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Chapter 15

  1. 1. Chapter 15 Economics Notes World of Trade
  2. 2. Trade and Its Benefits… <ul><li>Important Trade Concept : </li></ul><ul><ul><li>Imports come in, Exports go out </li></ul></ul><ul><li>Benefits: </li></ul><ul><ul><li>Specialization = more efficiency, lower prices </li></ul></ul><ul><ul><ul><li>You make most of your resources, others make most of theirs, and you exchange </li></ul></ul></ul><ul><ul><li>More trade = more “wealth”  think of circular flow! </li></ul></ul>
  3. 3. Things to Consider… <ul><li>How to buy? </li></ul><ul><ul><li>With International Trade, need to exchange currencies </li></ul></ul><ul><li>What is opportunity cost? </li></ul><ul><ul><li>Buying from another country means not producing it yourself </li></ul></ul><ul><ul><li>What can you do instead? </li></ul></ul>
  4. 4. Absolute vs. Comparative Advantage <ul><li>Specialization: “focus on what you are good at” </li></ul><ul><li>Absolute Advantage: </li></ul><ul><ul><li>Produce using fewest resources </li></ul></ul><ul><ul><ul><li>(Oil in Middle East, Wheat and Corn in Iowa) </li></ul></ul></ul><ul><li>Comparative Advantage: </li></ul><ul><ul><li>Ability to produce with lowest opportunity cost </li></ul></ul><ul><ul><ul><li>“ It’s most worth your time to do this, and trade for something else” </li></ul></ul></ul>
  5. 5. Productivity, Wages & Trade <ul><li>A country’s advantage will impact productivity, wages, and trade </li></ul><ul><ul><li>Productivity : how much able to be produced in a period of time </li></ul></ul><ul><ul><ul><li> advantage =  relative productivity </li></ul></ul></ul><ul><ul><ul><li> productivity =  wages </li></ul></ul></ul><ul><li>What increases productivity? </li></ul><ul><ul><li>Education! Training! Advanced Skills! </li></ul></ul><ul><ul><ul><li>Invest in yourself! Keep learning! </li></ul></ul></ul><ul><ul><ul><li>American workers able to do more with new technology, keep ahead of curve and can command higher wages! </li></ul></ul></ul>
  6. 6. Productivity and Trade <ul><li>If Americans continue to advance and learn more, they can command higher wages </li></ul><ul><li>Worth our time to create new things, let other less-advanced countries produce “lesser” goods </li></ul><ul><li>Sometimes a fear that a country does not get “fair shake” with trade, so… </li></ul>
  7. 7. Countries Protect their Own, Because of… <ul><li>National Defense: </li></ul><ul><ul><li>Don’t want to assume that vital things available from others in crisis </li></ul></ul><ul><li>Protect “Infant Industries:” </li></ul><ul><ul><li>New, weak industries need protecting </li></ul></ul><ul><ul><li>Once stabilized, remove trade barriers </li></ul></ul><ul><li>Diversify Economy: </li></ul><ul><ul><li>“ Don’t put all your eggs in one basket” </li></ul></ul><ul><li>Protect from Competition: </li></ul><ul><ul><li>Fear that foreign labor undercuts domestic jobs </li></ul></ul><ul><ul><li>Be careful - might be propping up a loser! </li></ul></ul><ul><li>Retaliate Against Other Countries : </li></ul><ul><ul><li>Threat of ending trade can be worse than war! </li></ul></ul>
  8. 8. Trade Barriers = Trade Manipulators <ul><li>Tariff: </li></ul><ul><ul><li>tax on imports that increases price, encourage people to buy domestic </li></ul></ul><ul><ul><li>Protective: “Punish Imports” </li></ul></ul><ul><ul><li>Revenue : Make extra money off of item </li></ul></ul><ul><li>Quota : “Allowance” on imported goods </li></ul><ul><ul><li>Limits amount of good to be imported </li></ul></ul><ul><li>Export Subsidy : Gov’t helps defray cost to export </li></ul><ul><li>Preservation of Standards : labor, wage, quality, environment </li></ul><ul><li>Should these practices be used liberally? </li></ul>
  9. 9. Types of Trade Agreements <ul><li>Free Trade Association (FTA) : </li></ul><ul><ul><li>Member countries agree to remove barriers to each other’s items </li></ul></ul><ul><ul><li>Kind of like int’l Costco - have to belong to get the deal </li></ul></ul><ul><li>Customs Union : </li></ul><ul><ul><li>Like FTA, but also imposes “common tariffs” on non-members (same %) </li></ul></ul>
  10. 10. Other Trade Agreements <ul><li>European Union (EU) : Creates economic “United States of Europe” </li></ul><ul><ul><li>Eliminate all trade barriers </li></ul></ul><ul><ul><li>Common Currency (Euro) </li></ul></ul><ul><ul><li>European Central Bank (Europe’s Fed) </li></ul></ul>
  11. 11. North American Free Trade Association (NAFTA) 1994 <ul><li>Free Trade between US, Canada, Mexico </li></ul><ul><li>Eliminate trade barriers, tariffs, and quotas over 10 yrs. </li></ul><ul><li>Protects intellectual property (copyrights, trademarks, patents) </li></ul><ul><li>Some loss of US jobs (but not “good” ones) </li></ul>
  12. 12. GATT & WTO <ul><li>General Agreement on Tariffs and Trade (GATT), begun 1947 </li></ul><ul><ul><li>130 member countries </li></ul></ul><ul><ul><li>Cut tariffs on capital, pharmaceutical, chemical, tech goods </li></ul></ul><ul><ul><li>End import quotas on cloth </li></ul></ul><ul><ul><li>Reduce Farm product quotas </li></ul></ul><ul><ul><li>Protect Intellectual Property </li></ul></ul><ul><ul><li>Development of World Trade Organization (WTO) to enforce agreement (1994) </li></ul></ul><ul><ul><ul><li>Spawns fear over globalization exploiting poor </li></ul></ul></ul>
  13. 13. Final Things to Consider… <ul><li>Exchange Rates : Have to pay people in local currency. Value of $ in relation to others affects buying power </li></ul><ul><li>Trade Balance : You’ll see that our Balance is almost always negative. Is it a particularly big deal? </li></ul><ul><li>Balance of Payments : Always equals out. Why? </li></ul>

×