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International Trade SFLS part2

1. The document discusses international trade and includes sections on specialization and comparative advantage, production possibility curves, terms of trade, and arguments for and against international trade. 2. It provides examples of trade graphs that illustrate the welfare effects of trade for countries that import and export goods. Imports create gains for consumers but losses for producers in the importing country. Exports create gains for producers but losses for consumers in the exporting country. 3. Overall, the gains from trade exceed the losses, as total surplus increases for both trading partners. However, there are concentrated losses for certain groups that face increased competition from imports or pay higher prices for exports. This makes them more motivated to lobby against trade than the diffuse winners.

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International Trade Part 2
International Trade: 3.) Graphing International Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 6.) Some ways to restrict International Trade
Are clothes cheap in China? The Answer: Who’s Asking?
Textile workers today in China Textile workers 100-150 years ago in America
Textile workers today in China Textile workers 100- 150 years ago in America
Textile workers today in China Textile workers 100- 150 years ago in America
Textile workers today in China Textile workers 100- 150 years ago in America
International Trade Graph A country has a comparative advantage in a good if it produces the good at lower opportunity cost than other countries. Countries can gain from trade if each exports the goods in which it has a comparative advantage. Now we apply the tools of welfare economics to see where these gains come from and who gets them. 3.) Graphing International Trade
Market EQ: P = 30 Q = 15 Total surplus = CS + PS Is the market EQ efficient? 0 10 20 30 40 50 60 0 5 10 15 20 25 30 P Q S D CS PS D S Evaluating the Market Equilibrium (EQ)
P Q D S PS PB QEQT A B C D E F CS = A PS = F Tax revenue = B buyer pays + D seller pays Total surplus = A + B + D + F With the tax, The tax reduces total surplus by C + E 3.) Efficacy and Fairness of Taxes
P Q D S 250 400 shortage Price ceiling 500 800 Price Ceiling - is the maximum price sellers are allowed to charge - also causes underproduction Price Controls
Price Floor - is the minimum price buyers are required to pay - also causes overproduction P Q D S 400 550 Price floor 5 surplus Price Controls
International Trade: 3.) Graphing International Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 6.) Some ways to restrict International Trade
The World Price and Comparative Advantage PW = the world price of a good, in world markets PD = domestic国内 price without trade (autarky 自给自足 ) If PD < PW, - country has (CA) in the good - under free trade, country exports the good If PD > PW, - country does not have (CA) - under free trade, country imports the good Things to define on the graph first:
1. The Small Economy Assumption Things to define on the graph first: Assumptions 假定:
1. The Small Economy Assumption Things to define on the graph first: Assumptions 假定: - A small economy is a price taker in world markets: Its actions have no effect on PW. Not always true – especially for the U.S. And China – but makes understanding easier without changing its lessons. - When a small economy engages in free trade, PW is the only relevant相应 price: No seller would accept less than PW, since they could sell the good for PW in world markets. No buyer would pay more than PW, since they could buy the good for PW in world markets.
Exporting country example…
Without Trade, PD = $4 Q = 500 PW = $6 With Free Trade, - domestic 国内 consumers demand 300 -domestic producers supply 750 Exports = 450 P Q D S $6 $4 500300 Soybeans exports 750 Exporting Soybeans example…
Without Trade, CS = A + B PS = C Total surplus = A + B + C With Free Trade, CS = A PS = B + C + D Total surplus = A + B + C + D P Q D S $6 $4 Soybeans exports A B D C gains from trade Exporting Soybeans example…
Importing country example…
Without Trade, PD = 3000 Q = 400 In World Markets, PW = 1500 P Q D S $1500 200 $3000 400 600 Cars Importing Cars example…
With Free Trade, - domestic consumers demand 600 - domestic producers supply 200 Imports = 400 P Q D S 1500 200 3000 600 Cars imports A Country That Imports TVs Without Trade, PD = 3000, Q = 400 In world markets, PW = 1500
Without Trade, CS = A PS = B + C Total surplus = A + B + C With Free Trade, CS = A + B + D PS = C Total surplus = A + B + C + D P Q D S 1500 3000 Cars A B D C gains from trade imports A Country That Imports TVs
total surplus producer surplus consumer surplus direction of trade rises falls rises imports PD > PW rises rises falls exports PD < PW Summary: The Welfare Effects of Trade Whether a good is imported or exported, trade creates winners and losers. But the gains exceed the losses.
Trade is Good! Positive economics is the study of what is 结果是基于数据 Normative economics is the study of what should be 是基于你的愿望是什么结果
International Trade: 3.) Graphing International Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 3.5) Trade Graph Results 6.) Some ways to restrict International Trade
Importing Country Results: Consumers are Winners! 3.5) Trade Graph Results… Lower prices and more variety!
Importing Country Results: Producers are Losers! 3.5) Trade Graph Results… More competition, lower prices, less customers.
Exporting Country Results: Producers are Winners! 3.5) Trade Graph Results… Higher prices outside country, more customers!
Exporting Country Results: Consumers are Losers! 3.5) Trade Graph Results… Higher prices outside country, so prices for you are higher.
Winners: Losers: Consumers in importing country Producers in importing country Consumers in exporting country Producers in exporting country 3.5) Trade Graph Results…
International Trade: 3.) Graphing International Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 6.) Some ways to restrict International Trade
- An easy way to measure trade between countries. (if your getting a good deal or not) 好对付? 4.) Terms of Trade Terms of Trade - A ratio of the indexed prices of exports and imports in a country.
4.) Terms of Trade Terms of Trade - A ratio of the indexed prices of exports and imports in a country. -List of all the prices put together.Index 指數 Index price of exports Index price of imports X 100 Base year 基年 is 100 Equation:
4.) Terms of Trade Terms of Trade - A ratio of the indexed prices of exports and imports in a country. For example, if a country exports 50 dollars worth of product in exchange for 100 dollars worth of imported product, that country's terms of trade are 50/100 = 0.5. If it’s over 100 – you get better price for your exports then what you pay for imports. If it’s under 100 – you get worse price for your exports then you pay for imports.
4.) Terms of Trade Terms of Trade - A ratio of the indexed prices of exports and imports in a country. - It can be used as a comparison of prices over time. Terms of Trade Usefulness Terms of Trade Limitations - Does not tell us about the volume 量 of the countries' exports, only relative 相对的 changes between countries over time.
International Trade: 3.) Graphing International Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 6.) Some ways to restrict International Trade
Reasons for: Reasons against: 1.) Comparative Advantages 2.) Variety 3.) Technology 4.) Government Policy 1.) Jobs 2.) National Security 3.) Infant-Industries 4.) Unfair competition 6.) Correct Balance of Payments Disequilibrium 7.) Control the consumption of Demerit Goods 5.) The protection-as- bargaining-chip argument 5.) Arguments about International Trade
Reasons for: Reasons against: 1.) Comparative Advantages 2.) Variety 3.) Technology 4.) Government Policy 1.) Jobs 2.) National Security 3.) Infant-Industries 4.) Unfair competition 6.) Correct Balance of Payments Disequilibrium 7.) Control the consumption of Demerit Goods 5.) The protection-as- bargaining-chip argument 5.) Arguments about International Trade Most economists agree that these are all bad reason. However people use them all the time.
Reasons for: Reasons against: 1.) Comparative Advantages 2.) Variety 3.) Technology 4.) Government Policy 1.) Jobs 2.) National Security 3.) Infant-Industries 4.) Unfair competition 6.) Correct Balance of Payments Disequilibrium 7.) Control the consumption of Demerit Goods 5.) The protection-as- bargaining-chip argument 5.) Arguments about International Trade
Reasons for 1. ) Comparative Advantages - Produce more with lower costs and produce on a larger scale. 5.) Arguments about International Trade
Reasons for Comparative advantages 2.) Variety - More cool stuff to buy! 5.) Arguments about International Trade
Reasons for Comparative advantages Variety 3.) Technology -Learn new things and can make even more cool stuff! 5.) Arguments about International Trade
Reasons for Comparative advantages Variety Technology 4.) Government Policy -To diversify in case of shocks’ 多样化 如果 供给冲击 5.) Arguments about International Trade
was the Shah of Iran from 16 September 1941 until his overthrow by the Iranian Revolution on 11 February 1979. Mohammad Reza Shah Pahlavi
Mohammad Reza Shah Pahlavi Leader of Iran Jimmy Carter President of USA
Iranian Revolution (1979) 伊朗革命
was an Iranian Shia Muslim religious leader, revolutionary, politician, the founder of the Islamic Republic of Iran and the leader of the 1979 Iranian Revolution which saw the overthrow of the Pahlavi monarchy and the Shah of Iran. Grand Ayatollah Sayyid Ruhollah Mūsavi Khomeini
Reasons for Comparative Advantages Variety Technology Increase total welfare for your country and people Government Policy 5.) Arguments about International Trade
Why All the Opposition 反对 to Trade?  The winners from trade could compensate 补偿 the losers and still be better off. Yet, such compensation rarely occurs.  The losses are often highly concentrated 浓 among a small group of people, who feel them more strongly. The gains are often spread thinly over many people, who may not see how trade benefits them.  Hence, the losers have more incentive to organize and lobby for restrictions on trade. 因此，失败者有更多的动力去组织和游说，对贸易的 限制。 Easy to see losers易见的输家 Hard to see winners 很难见到赢家
Reasons Against - Trade destroys jobs in the industries that compete against imports. 1.) Jobs 5.) Arguments about International Trade
Reasons Against - Trade destroys jobs in the industries that compete against imports. 1.) Jobs 5.) Arguments about International Trade Economists’ response: Total unemployment does not rise as imports rise, because job losses from imports are offset 抵销 by job gains in export industries. Even if all goods could be produced more cheaply abroad, the country need only have a comparative advantage to have a viable export industry and to gain from trade.
U.S. Imports & Unemployment, Decade averages, 1956-2005 0% 2% 4% 6% 8% 10% 12% 14% 16% 1956 -65 1966 -75 1976 -85 1986 -95 1996 -2005 Imports (% of GDP) Unemployment (% of labor force)
Reasons Against Jobs 2.) National Security - An industry vital 重要to national security should be protected from foreign competition to prevent dependence on foreigners. Ex – China will not let America build their aircraft carriers even though America has the (CA) in making them. 5.) Arguments about International Trade
Reasons Against Jobs 2.) National Security - An industry vital 重要to national security should be protected from foreign competition to prevent dependence on foreigners. 5.) Arguments about International Trade Economists’ response: Fine, as long as we base policy on true security needs. But producers may exaggerate their own importance to national security to obtain protection from foreign competition.
Reasons Against Jobs National Security 3.) Infant-Industries Sunrise- industries - A new industry argues for temporary protection until it is mature 成熟 and can compete with foreign firms. 5.) Arguments about International Trade
Reasons Against Jobs National Security 3.) Infant-Industries Sunrise- industries - A new industry argues for temporary protection until it is mature 成熟 and can compete with foreign firms. 5.) Arguments about International Trade Economists’ response: Difficult for govt to determine which industries will eventually be able to win. to compete and whether benefits of establishing these industries exceed cost to consumers of restricting imports. Besides, if a firm will be profitable in the long run, it should be willing to incur temporary losses.
Reasons Against Jobs National Security Infant-Industries 4.) Unfair Competition Dumping - Producers argue their competitors in another country have an unfair advantage, example - due to govt subsidies. Dumping 5.) Arguments about International Trade
Reasons Against Jobs National Security Infant-Industries 4.) Unfair Competition Dumping - Producers argue their competitors in another country have an unfair advantage, 5.) Arguments about International Trade Economists’ response: Great! Then we can import extra-cheap products subsidized by the other country’s taxpayers. The gains to our consumers will exceed the losses to our producers.
Reasons Against 5.) Arguments about International Trade 5.) The protection-as- bargaining-chip argument Example: The U.S. can threaten to limit imports of French wine unless France lifts their quotas 配额 on American beef.Economists’ response: Suppose France refuses. Then the U.S. must choose between two bad options: A) Restrict imports from France, which reduces welfare in the U.S. B) Don’t restrict imports, which reduces U.S. credibility.
Reasons for: Reasons against: 1.) Comparative Advantages 2.) Variety 3.) Technology 4.) Government Policy 1.) Jobs 2.) National Security 3.) Infant-Industries 4.) Unfair competition 6.) Correct Balance of Payments Disequilibrium 7.) Control the consumption of Demerit Goods 5.) The protection-as- bargaining-chip argument 5.) Arguments about International Trade
International Trade: 3.) Graphing International Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 6.) Some ways to restrict International Trade
Reasons for: Reasons against: 1.) Comparative Advantages 2.) Variety 3.) Technology 4.) Government Policy 1.) Jobs 2.) National Security 3.) Infant-Industries 4.) Unfair competition 6.) Correct Balance of Payments Disequilibrium 7.) Control the consumption of Demerit Goods 5.) The protection-as- bargaining-chip argument 5.) Arguments about International Trade Ways to control importation: Tariffs and Quotas
- a tax on imports Example: Cotton shirts PW = $20 Tariff: T = $10/shirt Consumers must pay $30 for an imported shirt. So, domestic producers can charge $30 per shirt. In general, the price facing domestic buyers & sellers equals (PW + T ). 6.) Some ways to restrict International Trade Tariff
$30 PW = $20 Free trade: buyers demand 80 sellers supply 25 imports = 55 T = $10/shirt price rises to $30 buyers demand 70 sellers supply 40 imports = 30 P Q D S $20 25 Cotton shirts 40 70 80 importsimports 6.) Some ways to restrict International Trade
$30 Free trade CS = A + B + C + D + E + F PS = G Total surplus = A + B + C + D + E + F + G Tariff CS = A + B PS = C + G G Revenue = E DWL = D + F Total surplus = A + B + C + E + G P Q D S $20 25 Cotton shirts 40 A B D E G FC 70 80 deadweight loss = D + F 6.) Some ways to restrict International Trade
$30 DWL D = deadweight loss from the higher prices of shirts F = deadweight loss from the under- consumption of shirts P Q D S $20 25 Cotton shirts 40 A B D E G FC 70 80 deadweight loss = D + F 6.) Some ways to restrict International Trade
- a tax on imports 6.) Some ways to restrict International Trade Tariff Quota - is a limit on imports of a good. Mostly has the same effects as a tariff: Raises price, reduces quantity of imports. - A tariff creates revenue for the govt. A quota creates profits for the foreign producers of the imported goods, who can sell them at higher price.
$30 Free trade CS = A + B + C + D + E + F PS = G Total surplus = A + B + C + D + E + F + G Tariff CS = A + B PS = C + G Foreign Producer Surplus = E DWL = D + F Total surplus = A + B + C + E + G P Q D S $20 25 Cotton shirts 40 A B D E G FC 70 80 deadweight loss = D + F 6.) Some ways to restrict International Trade
Ways to interpret Economic theory Positive economics is the study of what is 结果是基于数据 Normative economics is the study of what should be 是基于你的愿望是什么结果
So to Summarize…
International Trade: 3.) Graphing International Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 6.) Some ways to restrict International Trade
Absolute Advantage 1.) Specialization & Comparative Advantage Comparative Advantage (CA) - the ability to produce at a lower opportunity cost then someone else. - You produce what you have (CA) in and trade for the other things that you don’t.
4,000 100 5,000 2,000 1,000 3,000 500200 300 400 0 Computers Wheat (tons) U.S. Consumption With Trade 2700270 = amount consumed 0110+ imported 7000– exported 3400160produced wheatcomputers
Without Trade, CS = A + B PS = C Total surplus = A + B + C With Free Trade, CS = A PS = B + C + D Total surplus = A + B + C + D P Q D S $6 $4 Soybeans exports A B D C gains from trade Exporting Soybeans example…
Without Trade, CS = A PS = B + C Total surplus = A + B + C With Free Trade, CS = A + B + D PS = C Total surplus = A + B + C + D P Q D S 1500 3000 Cars A B D C gains from trade imports A Country That Imports TVs
2.5) Real World Limitations 1.) PPF are not linear直线 Production costs are not constant 不恒定 2.) Prices, Inflation 通胀, Exchange rates 汇率 change the equation 3.) Other costs are not included ex - Transportation costs Even though this is far from realistic 实际 it still is the starting point that explains that trade is good! 4.) Trade Barriers贸易壁垒
Winners: Losers: Consumers in importing country Producers in importing country Consumers in exporting country Producers in exporting country 3.5) Trade Graph Results…
4.) Terms of Trade Terms of Trade - A ratio of the indexed prices of exports and imports in a country. -List of all the prices put together.Index 指數 Index price of exports Index price of imports X 100 Base year 基年 is 100 Equation:
Reasons for: Reasons against: 1.) Comparative Advantages 2.) Variety 3.) Technology 4.) Government Policy 1.) Jobs 2.) National Security 3.) Infant-Industries 4.) Unfair competition 6.) Correct Balance of Payments Disequilibrium 7.) Control the consumption of Demerit Goods 5.) The protection-as- bargaining-chip argument 5.) Arguments about International Trade
- a tax on imports Example: Cotton shirts PW = $20 Tariff: T = $10/shirt Consumers must pay $30 for an imported shirt. So, domestic producers can charge $30 per shirt. In general, the price facing domestic buyers & sellers equals (PW + T ). 6.) Some ways to restrict International Trade Tariff
- a tax on imports 6.) Some ways to restrict International Trade Tariff Quota - is a limit on imports of a good. Mostly has the same effects as a tariff: Raises price, reduces quantity of imports. - A tariff creates revenue for the govt. A quota creates profits for the foreign producers of the imported goods, who can sell them at higher price.
$30 Free trade CS = A + B + C + D + E + F PS = G Total surplus = A + B + C + D + E + F + G Tariff CS = A + B PS = C + G G Revenue = E DWL = D + F Total surplus = A + B + C + E + G P Q D S $20 25 Cotton shirts 40 A B D E G FC 70 80 deadweight loss = D + F 6.) Some ways to restrict International Trade
$30 Free trade CS = A + B + C + D + E + F PS = G Total surplus = A + B + C + D + E + F + G Tariff CS = A + B PS = C + G Foreign Producer Surplus = E DWL = D + F Total surplus = A + B + C + E + G P Q D S $20 25 Cotton shirts 40 A B D E G FC 70 80 deadweight loss = D + F 6.) Some ways to restrict International Trade
The End Thank you
授人以鱼不如授人以渔

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International Trade SFLS part2

  • 1.
  • 2.
    International Trade: 3.) GraphingInternational Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 6.) Some ways to restrict International Trade
  • 3.
    Are clothes cheap inChina? The Answer: Who’s Asking?
  • 4.
    Textile workers today in China Textileworkers 100-150 years ago in America
  • 5.
    Textile workers today in China Textileworkers 100- 150 years ago in America
  • 6.
  • 7.
  • 12.
    International Trade Graph Acountry has a comparative advantage in a good if it produces the good at lower opportunity cost than other countries. Countries can gain from trade if each exports the goods in which it has a comparative advantage. Now we apply the tools of welfare economics to see where these gains come from and who gets them. 3.) Graphing International Trade
  • 13.
    Market EQ: P =30 Q = 15 Total surplus = CS + PS Is the market EQ efficient? 0 10 20 30 40 50 60 0 5 10 15 20 25 30 P Q S D CS PS D S Evaluating the Market Equilibrium (EQ)
  • 14.
    P Q D S PS PB QEQT A B C D E F CS= A PS = F Tax revenue = B buyer pays + D seller pays Total surplus = A + B + D + F With the tax, The tax reduces total surplus by C + E 3.) Efficacy and Fairness of Taxes
  • 15.
    P Q D S 250 400 shortage Price ceiling 500 800 Price Ceiling -is the maximum price sellers are allowed to charge - also causes underproduction Price Controls
  • 16.
    Price Floor - isthe minimum price buyers are required to pay - also causes overproduction P Q D S 400 550 Price floor 5 surplus Price Controls
  • 17.
    International Trade: 3.) GraphingInternational Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 6.) Some ways to restrict International Trade
  • 18.
    The World Priceand Comparative Advantage PW = the world price of a good, in world markets PD = domestic国内 price without trade (autarky 自给自足 ) If PD < PW, - country has (CA) in the good - under free trade, country exports the good If PD > PW, - country does not have (CA) - under free trade, country imports the good Things to define on the graph first:
  • 19.
    1. The SmallEconomy Assumption Things to define on the graph first: Assumptions 假定:
  • 27.
    1. The SmallEconomy Assumption Things to define on the graph first: Assumptions 假定: - A small economy is a price taker in world markets: Its actions have no effect on PW. Not always true – especially for the U.S. And China – but makes understanding easier without changing its lessons. - When a small economy engages in free trade, PW is the only relevant相应 price: No seller would accept less than PW, since they could sell the good for PW in world markets. No buyer would pay more than PW, since they could buy the good for PW in world markets.
  • 28.
  • 29.
    Without Trade, PD =$4 Q = 500 PW = $6 With Free Trade, - domestic 国内 consumers demand 300 -domestic producers supply 750 Exports = 450 P Q D S $6 $4 500300 Soybeans exports 750 Exporting Soybeans example…
  • 30.
    Without Trade, CS =A + B PS = C Total surplus = A + B + C With Free Trade, CS = A PS = B + C + D Total surplus = A + B + C + D P Q D S $6 $4 Soybeans exports A B D C gains from trade Exporting Soybeans example…
  • 31.
  • 32.
    Without Trade, PD =3000 Q = 400 In World Markets, PW = 1500 P Q D S $1500 200 $3000 400 600 Cars Importing Cars example…
  • 33.
    With Free Trade, -domestic consumers demand 600 - domestic producers supply 200 Imports = 400 P Q D S 1500 200 3000 600 Cars imports A Country That Imports TVs Without Trade, PD = 3000, Q = 400 In world markets, PW = 1500
  • 34.
    Without Trade, CS =A PS = B + C Total surplus = A + B + C With Free Trade, CS = A + B + D PS = C Total surplus = A + B + C + D P Q D S 1500 3000 Cars A B D C gains from trade imports A Country That Imports TVs
  • 35.
    total surplus producer surplus consumersurplus direction of trade rises falls rises imports PD > PW rises rises falls exports PD < PW Summary: The Welfare Effects of Trade Whether a good is imported or exported, trade creates winners and losers. But the gains exceed the losses.
  • 36.
    Trade is Good! Positiveeconomics is the study of what is 结果是基于数据 Normative economics is the study of what should be 是基于你的愿望是什么结果
  • 37.
    International Trade: 3.) GraphingInternational Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 3.5) Trade Graph Results 6.) Some ways to restrict International Trade
  • 38.
    Importing Country Results: Consumers areWinners! 3.5) Trade Graph Results… Lower prices and more variety!
  • 39.
    Importing Country Results: Producersare Losers! 3.5) Trade Graph Results… More competition, lower prices, less customers.
  • 40.
    Exporting Country Results: Producersare Winners! 3.5) Trade Graph Results… Higher prices outside country, more customers!
  • 41.
    Exporting Country Results: Consumers areLosers! 3.5) Trade Graph Results… Higher prices outside country, so prices for you are higher.
  • 42.
    Winners: Losers: Consumers in importing country Producersin importing country Consumers in exporting country Producers in exporting country 3.5) Trade Graph Results…
  • 43.
    International Trade: 3.) GraphingInternational Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 6.) Some ways to restrict International Trade
  • 44.
    - An easyway to measure trade between countries. (if your getting a good deal or not) 好对付? 4.) Terms of Trade Terms of Trade - A ratio of the indexed prices of exports and imports in a country.
  • 45.
    4.) Terms ofTrade Terms of Trade - A ratio of the indexed prices of exports and imports in a country. -List of all the prices put together.Index 指數 Index price of exports Index price of imports X 100 Base year 基年 is 100 Equation:
  • 46.
    4.) Terms ofTrade Terms of Trade - A ratio of the indexed prices of exports and imports in a country. For example, if a country exports 50 dollars worth of product in exchange for 100 dollars worth of imported product, that country's terms of trade are 50/100 = 0.5. If it’s over 100 – you get better price for your exports then what you pay for imports. If it’s under 100 – you get worse price for your exports then you pay for imports.
  • 47.
    4.) Terms ofTrade Terms of Trade - A ratio of the indexed prices of exports and imports in a country. - It can be used as a comparison of prices over time. Terms of Trade Usefulness Terms of Trade Limitations - Does not tell us about the volume 量 of the countries' exports, only relative 相对的 changes between countries over time.
  • 48.
    International Trade: 3.) GraphingInternational Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 6.) Some ways to restrict International Trade
  • 49.
    Reasons for: Reasonsagainst: 1.) Comparative Advantages 2.) Variety 3.) Technology 4.) Government Policy 1.) Jobs 2.) National Security 3.) Infant-Industries 4.) Unfair competition 6.) Correct Balance of Payments Disequilibrium 7.) Control the consumption of Demerit Goods 5.) The protection-as- bargaining-chip argument 5.) Arguments about International Trade
  • 50.
    Reasons for: Reasonsagainst: 1.) Comparative Advantages 2.) Variety 3.) Technology 4.) Government Policy 1.) Jobs 2.) National Security 3.) Infant-Industries 4.) Unfair competition 6.) Correct Balance of Payments Disequilibrium 7.) Control the consumption of Demerit Goods 5.) The protection-as- bargaining-chip argument 5.) Arguments about International Trade Most economists agree that these are all bad reason. However people use them all the time.
  • 51.
    Reasons for: Reasonsagainst: 1.) Comparative Advantages 2.) Variety 3.) Technology 4.) Government Policy 1.) Jobs 2.) National Security 3.) Infant-Industries 4.) Unfair competition 6.) Correct Balance of Payments Disequilibrium 7.) Control the consumption of Demerit Goods 5.) The protection-as- bargaining-chip argument 5.) Arguments about International Trade
  • 52.
    Reasons for 1. )Comparative Advantages - Produce more with lower costs and produce on a larger scale. 5.) Arguments about International Trade
  • 53.
    Reasons for Comparative advantages 2.)Variety - More cool stuff to buy! 5.) Arguments about International Trade
  • 54.
    Reasons for Comparative advantages Variety 3.)Technology -Learn new things and can make even more cool stuff! 5.) Arguments about International Trade
  • 60.
    Reasons for Comparative advantages Variety Technology 4.)Government Policy -To diversify in case of shocks’ 多样化 如果 供给冲击 5.) Arguments about International Trade
  • 61.
    was the Shahof Iran from 16 September 1941 until his overthrow by the Iranian Revolution on 11 February 1979. Mohammad Reza Shah Pahlavi
  • 63.
    Mohammad Reza Shah Pahlavi Leader ofIran Jimmy Carter President of USA
  • 64.
  • 65.
    was an IranianShia Muslim religious leader, revolutionary, politician, the founder of the Islamic Republic of Iran and the leader of the 1979 Iranian Revolution which saw the overthrow of the Pahlavi monarchy and the Shah of Iran. Grand Ayatollah Sayyid Ruhollah Mūsavi Khomeini
  • 69.
    Reasons for Comparative Advantages Variety Technology Increasetotal welfare for your country and people Government Policy 5.) Arguments about International Trade
  • 70.
    Why All theOpposition 反对 to Trade?  The winners from trade could compensate 补偿 the losers and still be better off. Yet, such compensation rarely occurs.  The losses are often highly concentrated 浓 among a small group of people, who feel them more strongly. The gains are often spread thinly over many people, who may not see how trade benefits them.  Hence, the losers have more incentive to organize and lobby for restrictions on trade. 因此，失败者有更多的动力去组织和游说，对贸易的 限制。 Easy to see losers易见的输家 Hard to see winners 很难见到赢家
  • 71.
    Reasons Against - Tradedestroys jobs in the industries that compete against imports. 1.) Jobs 5.) Arguments about International Trade
  • 72.
    Reasons Against - Tradedestroys jobs in the industries that compete against imports. 1.) Jobs 5.) Arguments about International Trade Economists’ response: Total unemployment does not rise as imports rise, because job losses from imports are offset 抵销 by job gains in export industries. Even if all goods could be produced more cheaply abroad, the country need only have a comparative advantage to have a viable export industry and to gain from trade.
  • 73.
    U.S. Imports &Unemployment, Decade averages, 1956-2005 0% 2% 4% 6% 8% 10% 12% 14% 16% 1956 -65 1966 -75 1976 -85 1986 -95 1996 -2005 Imports (% of GDP) Unemployment (% of labor force)
  • 74.
    Reasons Against Jobs 2.) NationalSecurity - An industry vital 重要to national security should be protected from foreign competition to prevent dependence on foreigners. Ex – China will not let America build their aircraft carriers even though America has the (CA) in making them. 5.) Arguments about International Trade
  • 75.
    Reasons Against Jobs 2.) NationalSecurity - An industry vital 重要to national security should be protected from foreign competition to prevent dependence on foreigners. 5.) Arguments about International Trade Economists’ response: Fine, as long as we base policy on true security needs. But producers may exaggerate their own importance to national security to obtain protection from foreign competition.
  • 76.
    Reasons Against Jobs National Security 3.)Infant-Industries Sunrise- industries - A new industry argues for temporary protection until it is mature 成熟 and can compete with foreign firms. 5.) Arguments about International Trade
  • 80.
    Reasons Against Jobs National Security 3.)Infant-Industries Sunrise- industries - A new industry argues for temporary protection until it is mature 成熟 and can compete with foreign firms. 5.) Arguments about International Trade Economists’ response: Difficult for govt to determine which industries will eventually be able to win. to compete and whether benefits of establishing these industries exceed cost to consumers of restricting imports. Besides, if a firm will be profitable in the long run, it should be willing to incur temporary losses.
  • 81.
    Reasons Against Jobs National Security Infant-Industries 4.)Unfair Competition Dumping - Producers argue their competitors in another country have an unfair advantage, example - due to govt subsidies. Dumping 5.) Arguments about International Trade
  • 87.
    Reasons Against Jobs National Security Infant-Industries 4.)Unfair Competition Dumping - Producers argue their competitors in another country have an unfair advantage, 5.) Arguments about International Trade Economists’ response: Great! Then we can import extra-cheap products subsidized by the other country’s taxpayers. The gains to our consumers will exceed the losses to our producers.
  • 88.
    Reasons Against 5.) Argumentsabout International Trade 5.) The protection-as- bargaining-chip argument Example: The U.S. can threaten to limit imports of French wine unless France lifts their quotas 配额 on American beef.Economists’ response: Suppose France refuses. Then the U.S. must choose between two bad options: A) Restrict imports from France, which reduces welfare in the U.S. B) Don’t restrict imports, which reduces U.S. credibility.
  • 89.
    Reasons for: Reasonsagainst: 1.) Comparative Advantages 2.) Variety 3.) Technology 4.) Government Policy 1.) Jobs 2.) National Security 3.) Infant-Industries 4.) Unfair competition 6.) Correct Balance of Payments Disequilibrium 7.) Control the consumption of Demerit Goods 5.) The protection-as- bargaining-chip argument 5.) Arguments about International Trade
  • 90.
    International Trade: 3.) GraphingInternational Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 6.) Some ways to restrict International Trade
  • 91.
    Reasons for: Reasonsagainst: 1.) Comparative Advantages 2.) Variety 3.) Technology 4.) Government Policy 1.) Jobs 2.) National Security 3.) Infant-Industries 4.) Unfair competition 6.) Correct Balance of Payments Disequilibrium 7.) Control the consumption of Demerit Goods 5.) The protection-as- bargaining-chip argument 5.) Arguments about International Trade Ways to control importation: Tariffs and Quotas
  • 92.
    - a taxon imports Example: Cotton shirts PW = $20 Tariff: T = $10/shirt Consumers must pay $30 for an imported shirt. So, domestic producers can charge $30 per shirt. In general, the price facing domestic buyers & sellers equals (PW + T ). 6.) Some ways to restrict International Trade Tariff
  • 93.
    $30 PW = $20 Freetrade: buyers demand 80 sellers supply 25 imports = 55 T = $10/shirt price rises to $30 buyers demand 70 sellers supply 40 imports = 30 P Q D S $20 25 Cotton shirts 40 70 80 importsimports 6.) Some ways to restrict International Trade
  • 94.
    $30 Free trade CS =A + B + C + D + E + F PS = G Total surplus = A + B + C + D + E + F + G Tariff CS = A + B PS = C + G G Revenue = E DWL = D + F Total surplus = A + B + C + E + G P Q D S $20 25 Cotton shirts 40 A B D E G FC 70 80 deadweight loss = D + F 6.) Some ways to restrict International Trade
  • 95.
    $30 DWL D = deadweightloss from the higher prices of shirts F = deadweight loss from the under- consumption of shirts P Q D S $20 25 Cotton shirts 40 A B D E G FC 70 80 deadweight loss = D + F 6.) Some ways to restrict International Trade
  • 96.
    - a taxon imports 6.) Some ways to restrict International Trade Tariff Quota - is a limit on imports of a good. Mostly has the same effects as a tariff: Raises price, reduces quantity of imports. - A tariff creates revenue for the govt. A quota creates profits for the foreign producers of the imported goods, who can sell them at higher price.
  • 97.
    $30 Free trade CS =A + B + C + D + E + F PS = G Total surplus = A + B + C + D + E + F + G Tariff CS = A + B PS = C + G Foreign Producer Surplus = E DWL = D + F Total surplus = A + B + C + E + G P Q D S $20 25 Cotton shirts 40 A B D E G FC 70 80 deadweight loss = D + F 6.) Some ways to restrict International Trade
  • 100.
    Ways to interpretEconomic theory Positive economics is the study of what is 结果是基于数据 Normative economics is the study of what should be 是基于你的愿望是什么结果
  • 101.
  • 102.
    International Trade: 3.) GraphingInternational Trade 1.) Specialization & Comparative Advantage 2.) PPC and Trading Possibilities 4.) Terms of Trade 5.) Arguments about International Trade 6.) Some ways to restrict International Trade
  • 103.
    Absolute Advantage 1.) Specialization &Comparative Advantage Comparative Advantage (CA) - the ability to produce at a lower opportunity cost then someone else. - You produce what you have (CA) in and trade for the other things that you don’t.
  • 105.
    4,000 100 5,000 2,000 1,000 3,000 500200 300 400 0 Computers Wheat (tons) U.S.Consumption With Trade 2700270 = amount consumed 0110+ imported 7000– exported 3400160produced wheatcomputers
  • 106.
    Without Trade, CS =A + B PS = C Total surplus = A + B + C With Free Trade, CS = A PS = B + C + D Total surplus = A + B + C + D P Q D S $6 $4 Soybeans exports A B D C gains from trade Exporting Soybeans example…
  • 107.
    Without Trade, CS =A PS = B + C Total surplus = A + B + C With Free Trade, CS = A + B + D PS = C Total surplus = A + B + C + D P Q D S 1500 3000 Cars A B D C gains from trade imports A Country That Imports TVs
  • 108.
    2.5) Real WorldLimitations 1.) PPF are not linear直线 Production costs are not constant 不恒定 2.) Prices, Inflation 通胀, Exchange rates 汇率 change the equation 3.) Other costs are not included ex - Transportation costs Even though this is far from realistic 实际 it still is the starting point that explains that trade is good! 4.) Trade Barriers贸易壁垒
  • 109.
    Winners: Losers: Consumers in importing country Producersin importing country Consumers in exporting country Producers in exporting country 3.5) Trade Graph Results…
  • 110.
    4.) Terms ofTrade Terms of Trade - A ratio of the indexed prices of exports and imports in a country. -List of all the prices put together.Index 指數 Index price of exports Index price of imports X 100 Base year 基年 is 100 Equation:
  • 111.
    Reasons for: Reasonsagainst: 1.) Comparative Advantages 2.) Variety 3.) Technology 4.) Government Policy 1.) Jobs 2.) National Security 3.) Infant-Industries 4.) Unfair competition 6.) Correct Balance of Payments Disequilibrium 7.) Control the consumption of Demerit Goods 5.) The protection-as- bargaining-chip argument 5.) Arguments about International Trade
  • 112.
    - a taxon imports Example: Cotton shirts PW = $20 Tariff: T = $10/shirt Consumers must pay $30 for an imported shirt. So, domestic producers can charge $30 per shirt. In general, the price facing domestic buyers & sellers equals (PW + T ). 6.) Some ways to restrict International Trade Tariff
  • 113.
    - a taxon imports 6.) Some ways to restrict International Trade Tariff Quota - is a limit on imports of a good. Mostly has the same effects as a tariff: Raises price, reduces quantity of imports. - A tariff creates revenue for the govt. A quota creates profits for the foreign producers of the imported goods, who can sell them at higher price.
  • 114.
    $30 Free trade CS =A + B + C + D + E + F PS = G Total surplus = A + B + C + D + E + F + G Tariff CS = A + B PS = C + G G Revenue = E DWL = D + F Total surplus = A + B + C + E + G P Q D S $20 25 Cotton shirts 40 A B D E G FC 70 80 deadweight loss = D + F 6.) Some ways to restrict International Trade
  • 115.
    $30 Free trade CS =A + B + C + D + E + F PS = G Total surplus = A + B + C + D + E + F + G Tariff CS = A + B PS = C + G Foreign Producer Surplus = E DWL = D + F Total surplus = A + B + C + E + G P Q D S $20 25 Cotton shirts 40 A B D E G FC 70 80 deadweight loss = D + F 6.) Some ways to restrict International Trade
  • 116.
  • 117.