Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Introduction to International Trade

620 views

Published on

  • Very nice tips on this. In case you need help on any kind of academic writing visit website ⇒ www.HelpWriting.net ⇐ and place your order
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • make your breasts bigger without surgery! NO CREAMS NO PILLS 100% NATURAL. get info! ●●● https://dwz1.cc/iZqgQnlK
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here

Introduction to International Trade

  1. 1. INTRODUCTION TO INTERNATIONAL TRADE Yudy Yunardy
  2. 2. GOALS  Reasons for Trade  Understanding Production Possibilities  Defining Absolute Advantage  Defining Comparative Advantage  Absolute Advantage Versus Comparative Advantage  Benefits of Specialization  Relationship Between Specialization and Trade
  3. 3. REASONS FOR TRADE  International trade is the exchange of capital, goods, and services across international borders or territories.  Each nation should produce goods for which its domestic opportunity costs are lower than the domestic opportunity costs of other nations and exchange those goods for products that have higher domestic opportunity costs compared to other nations.  Benefits of trade include lower prices and better products for consumers, improved political ties among nations, and efficiency gains for domestic producers.
  4. 4. UNDERSTANDING PRODUCTION POSSIBILITIES  The production possibilities curve shows the maximum possible production level of one commodity for any production level of another, given the existing levels of the factors of production and the state of technology.  Points outside the production possibilities curve are unattainable with existing resources and technology if trade does not occur with an external producer.  Without trade, each country consumes only what it produces.However, because of specialization and trade, the absolute quantity of goods available for consumption is higher than the quantity that would be available under national economic self- sufficiency.
  5. 5. PRODUCTION POSSIBILITIES FRONTIER
  6. 6. DEFINING ABSOLUTE ADVANTAGE  A country that has an absolute advantage can produce a good at lower marginal cost.  A country with an absolute advantage can sell the good for less than the country that does not have the absolute advantage.  Absolute advantage differs from comparative advantage, which refers to the ability to produce specific goods at a lower opportunity cost.
  7. 7. DEFINING COMPARATIVE ADVANTAGE  Even if one country has an absolute advantage in the production of all goods, it can still benefit from trade.  Countries should import goods if the opportunity cost of importing is lower than the cost of producing them locally.  Specialization according to comparative advantage results in a more efficient allocation of world resources.A larger quantity of outputs becomes available to the trading nations.  Competitive advantage is distinct from comparative advantage because it has to do with distinguishing attributes which are not necessarily related to a lower opportunity cost.
  8. 8. ABSOLUTE ADVANTAGE VERSUS COMPARATIVE ADVANTAGE  The producer that requires a smaller quantity inputs to produce a good is said to have an absolute advantage in producing that good.  Comparative advantage refers to the ability of a party to produce a particular good or service at a lower opportunity cost than another.  The existence of a comparative advantage allows both parties to benefit from trading, because each party will receive a good at a price that is lower than its opportunity cost of producing that good.
  9. 9. ABSOLUTE ADVANTAGE Output per Day of Work Food Clothing Country A 6 3 Country B 1 2
  10. 10. BENEFITS OF SPECIALIZATION  Whenever countries have different opportunity costs in production they can benefit from specialization and trade.  Benefits of specialization include greater economic efficiency, consumer benefits, and opportunities for growth for competitive sectors.  The disadvantages of specialization include threats to uncompetitive sectors, the risk of over-specialization, and strategic vulnerability.
  11. 11. RELATIONSHIP BETWEEN SPECIALIZATION AND TRADE  Nations decide whether they should export or import goods based on comparative advantages.  Generally, nations can consume more by specializing in a good and trading it for other goods.  When countries decide which country will specialize in which product, the essential question becomes who could produce the product at a lower opportunity cost.
  12. 12. COMPARATIVE ADVANTAGE Amounts produced in 12 hours Ketchup Mustard Bob 6 bottles 4 bottles Tom 12 bottles 3 bottles
  13. 13. THE END  Questions?
  14. 14. QUIZ..  Oops!!!
  15. 15. International Trade Which of the following is NOT a benefit from international trade? A) More choices for consumers B) Increased comparative advantage C) Improved returns to investment in research and development D) Improved resource allocation
  16. 16. International Trade What is the source of the net benefit from international trade? A) Comparative advantage B) Technology spillovers C) Maximization of consumption D) Efficient levels of investment
  17. 17. International Trade Imagine Russia exports lumber to Norway. Which of the following describes the price that Norway pays for this lumber? A) It is above Russia's and Norway's opportunity cost of producing lumber B) It is above Russia's and below Norway's opportunity cost of producing lumber C) It is below Russia's and Norway's opportunity cost of producing lumber D) It is below Russia's and above Norway's opportunity cost of producing lumber
  18. 18. International Trade Which of these determines the location of the production possibilities frontier? A) Level of technology B) Amount of raw materials available C) All of these answers D) Amount of labor available
  19. 19. International Trade Fill in the blank. The gains from trade enables _______________ the production possibility frontier. A) Production outside B) Consumption inside C) Consumption outside D) Production inside
  20. 20. International Trade Complete the sentence with the most suitable pairs of words: (1) is the only sustainable way to consume outside the PPF curve and (2) allows us to shift the PPF curve outward in the long run. A) Efficiency (1); technology (2) B) Efficiency (1); trade (2) C) Trade (1); technology (2) D) Technology (1); efficiency (2)
  21. 21. International Trade Imagine Firm A has an absolute advantage in cereal production over Firm B. If both firms are producing 10 boxes of cereal an hour, what is true about the marginal cost of the 11th box of cereal? A) The marginal cost is lower for firm B than firm A B) The marginal cost is the same for both firms C) The marginal cost is not related to absolute advantage D) The marginal cost is lower for Firm A than Firm B
  22. 22. International Trade Country A has a comparative advantage over Country B in the production of corn if ____________. A) the opportunity cost of producing corn is lowest in Country A B) the opportunity cost of producing corn is highest in Country A C) the marginal cost of producing corn is highest in Country A D) the marginal cost of producing corn is lowest in Country A
  23. 23. International Trade Which of the following statements best describes the implications of comparative advantage? A) Export goods if they can be produced at a cheaper cost elsewhere B) Import goods if the opportunity cost of importing is lower than the cost of producing them locally C) Import goods if they can be produced elsewhere D) Export goods if the opportunity cost of exporting is lower than the cost of producing them locally
  24. 24. International Trade Economic efficiency occurs when all trading partners _____________. A) have the same level of marginal productivity B) produce the item that they can sell at the lowest cost C) specialize in the area(s) where they have a comparative advantage D) All of these answers
  25. 25. International Trade Fill in the blank. For a country to have a comparative advantage in producing good A against another country, it should be able to produce A ______________. A) With less labor B) With less capital C) At a lower opportunity cost D) At a lower cost
  26. 26. International Trade There are two goods (bread and shirts) and two factors of production (labor and capital). Bread is capital-intensive, while shirts are labor-intensive. Country A is abundant in labor; Country B is abundant in capital. Under free trade, which is true? A) Country A will export shirts, while country B will export bread. B) Country A will export bread, while country B will export shirts. C) Country A will export both bread and shirts. D) Country B will export both bread and shirts.
  27. 27. International Trade What is the difference between absolute advantage? A) A country can have a comparative advantage even if it does not have an absolute advantage. B) Absolute advantage is necessary for trade, while comparative advantage is not. C) Countries with a comparative advantage must have an absolute advantage, but not vis versa. D) None of these answers.
  28. 28. International Trade Which one of the following is a benefit of specialization? A) Countries can take advantage of economies of scale. B) Consumers benefit from lower prices since goods are produced more efficiently. C) Countries can trade for the good in which they do not have a comparative advantage. D) All of these answers.
  29. 29. International Trade What do countries consider when deciding to specialize? A) Their absolute advantage B) Their level of economic development C) Their comparative advantage D) Their level of efficiency

×