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International Trade


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International Trade

  1. 1. Trade & Specialization
  2. 2. Question of the Day • There are two presidents buried at Arlington National Cemetary. One is John F. Kennedy. Who is the other one? • One of the first presidents in the 20th century. • William Howard Taft
  3. 3. Activity Rules • Inside voices. • No “forced” trades. (Don’t steal from each other) • You must vote every single round. • 3 minutes per trading session (I may shorten that if everyone appears to have finished)
  4. 4. • How many people made trades? • Which items were most popular? Least popular? Why? • Did anyone trade more than once? Why? Did anyone not trade? • How might we explain the satisfaction points on the board? • Was everyone happy with their trades? • If we were to observe 20 people buying groceries, what might we conclude about their gains and losses? Their wealth?
  5. 5. Trade Notes • Imports: Goods or services that an individual (or country) trades for. • Exports: Goods or services that an individual (or country) trades away. • What is the relationship between exports and imports?
  6. 6. Absolute vs. Comparative Advantage • Absolute advantage: When one nation can produce an item with fewer resources than another nation can. • Better technology, better production processes etc. • Comparative advantage: The ability to produce an item at a lower opportunity cost. • Countries or individuals will export (trade away) items they have a comparative advantage in producing. Why?
  7. 7. Barriers to Trade • Quota • Tariff • Export Subsidy • Why might a country put up barriers to trade? • What is the difference between a “quota” and a “tariff?”
  8. 8. The World Trade Organization
  9. 9. North American Free Trade Agreement • Canada, United States, & Mexico • Reduces tariffs and other barriers of trade between these countries. • Controversial • Why?
  10. 10. Today’s Take-Away • Free-trade, at least among individuals, makes everyone better off. • The WTO and NAFTA are organizations that promote free-trade but are very controversial. • We will discuss these more in-depth when we talk about current economic issues next week. • Countries and individuals trade what they are good at making for things they are not (comparative advantage)