hubbard01_instructorppt08.ppt

Comparative Advantage and the Gains from International Trade,2 of 39,After studying this chapter,you should be able to:Discuss the increasing importance of international trade to the United States.Understand the difference between comparative advantage and absolute advantage.Explain how countries gain from international trade.Discuss the sources of comparative advantage.Analyze the economic effects of government policies that restrict international trade.Evaluate the arguments for and against government policies that restrict international trade.,Sugar Quota Drives U.S.Candy Manufacturers Overseas,LEARNING OBJECTIVES,In this chapter,we will explore who wins and who loses from international trade and review the political debate over whether international trade should be restricted.,3 of 39,An Overview of International Trade,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.,4 of 39,The United Statesin the International Economy,The Importance of Trade to the U.S.Economy,FIGURE 8-1,International Trade Is of Increasing Importance to the United States,Exports and imports of goods and services as a percentage of total productionmeasured by GDP show the importance of international trade to an economy.Since 1950,both imports and exports have been steadily rising as a fraction of U.S.GDP.,Discuss the role of internationaltrade in the U.S.economy.,8.1 LEARNING OBJECTIVE,5 of 39,An Overview of International Trade,U.S.International Trade in a World Context,8-2,6 of 39,The United Statesin the International Economy,U.S.International Trade in a World Context,FIGURE 8-2,The Eight Leading Exporting Countries,The United States is the leading exporting country,accounting for about 9.5 percent of total world exports.The values are the shares of total world exports of merchandise and commercial services.,Discuss the role of internationaltrade in the U.S.economy.,8.1 LEARNING OBJECTIVE,7 of 39,An Overview of International Trade,U.S.International Trade in a World Context,8 of 39,The United Statesin the International Economy,U.S.International Trade in a World Context,FIGURE 8-3,International Trade as a Percentage of GDP,International trade is still less important to the United States than to most other countries.,Discuss the role of internationaltrade in the U.S.economy.,8.1 LEARNING OBJECTIVE,9 of 39,Has Outsourcing Hurt the U.S.Economy?,8-1,Some companies outsource technical support services to India.,10 of 39,How Caterpillar Depends on International Trade,YOUR TURN:Test your understanding by doing related problem 1.5 at the end of this chapter.,Caterpillar has become increasingly dependent over time on foreign markets.The firms exports rose from just over half of total sales in 2004 to more than two-thirdsin 2008.,Discuss the role of internationaltrade in the U.S.economy.,8.1 LEARNING OBJECTIVE,11 of 39,Comparative Advantage:The Basis of All Trade,A Brief Review of Comparative AdvantageComparative advantage The ability of an individual,business,or country to produce a good or service at the lowest opportunity cost.Opportunity Cost The highest-valued alternative that must be given up to engage in an activity.,12 of 39,Comparative Advantage:The Basis of All Trade,Comparative Advantage in International TradeAbsolute advantage The ability to produce more of a good or service than competitors when using the same amount of resources.,13 of 39,Comparative Advantage:The Basis of All Trade,Comparative Advantage in International Trade,An Example of Japanese Workers Being More Productive than American Workers,8 1,The Opportunity Costs of Producing Cell Phones and MP3 Players,8 2,14 of 39,The Gains from Trade,Autarky The ability of an individual,business,or country to produce a good or service at the lowest opportunity cost.,15 of 39,The Gains from Trade,Increasing Consumption through TradeTerms of Trade The ratio at which a country can trade its exports for imports from other countries.,Production without Trade,8 3,16 of 39,The Gains from Trade,Increasing Consumption through Trade,The Gains from Trade for Japan and the United States,8 4,17 of 39,The Gains from Trade,8-1,18 of 39,The Gains from Trade,Remember that Trade Creates Both Winners and Losers,Why Dont We See Complete Specialization?Not all goods and services are traded internationally.Production of most goods involves increasing opportunity costs.Tastes for products differ.,19 of 39,Where Does Comparative Advantage Come From?,Among the main sources of comparative advantage are the following:Climate and natural resourcesRelative abundance of labor and capitalTechnologyExternal economiesExternal economies Reductions in a firms costs that result from an expansion in the size of an industry.,20 of 39,Why is Dalton,Georgia,the Carpet-Making Capital of the World?,8-2,Because Catherine Evans Whitener started making bedspreads by hand in Dalton,Georgia,a hundred years ago,a multibillion-dollar carpet industry is now located there.,21 of 39,Government Policies That Restrict Trade,8-4,Free Trade Trade between countries that is free from government restrictions.,22 of 39,Government Policies That Restrict Trade,8-5,23 of 39,Government Policies That Restrict Trade,Tariffs,8-6,24 of 39,Government Policies That Restrict Trade,QuotasQuota A numerical limit imposed by the government on the quantity of a good that can be imported into a country.Voluntary export restraint An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country.,25 of 39,Government Policies That Restrict Trade,Quotas,26 of 39,Measuring the Economic Effect of a Quota,8-2,27 of 39,Government Policies That Restrict Trade,The High Cost of Preserving Jobs with Tariffs and Quotas,Preserving U.S.Jobs with Tariffs and Quotas Is Expensive,8 5,28 of 39,Government Policies That Restrict Trade,Gains from Unilateral Elimination of Tariffs and Quotas,Preserving Japanese Jobs with Tariffs and Quotas Is Also Expensive,8 6,29 of 39,The Argument over Trade Policies and Globalization,World Trade Organization(WTO)An international organization that enforces international trade agreements.,30 of 39,The Argument over Trade Policies and Globalization,Why Do Some People Oppose the World Trade Organization?,Globalization The process of countries becoming more open to foreign trade and investment.ANTI-GLOBALIZATIONSome people believe that free trade and foreign investment destroy the distinctive cultures of many countries.Many governments have resisted globalization proposals.,31 of 39,The Unintended Consequences of Banning Goods Made with Child Labor,Would eliminating child labor in developing countries be a good thing?,8-3,32 of 39,The Argument over Trade Policies and Globalization,Why Do Some People Oppose the World Trade Organization?,“OLD-FASHIONED”PROTECTIONISMProtectionism The use of trade barriers to shield domestic companies from foreign competition.,Protectionism is usually justified on the basis of one of the following arguments:Saving jobsProtecting high wagesProtecting infant industriesProtecting national security,33 of 39,Has NAFTA Helped or Hurt the U.S.Economy?,Despite resistance to NAFTA,time proved that the U.S.economy gained jobs.,8-4,34 of 39,The Obama Administration Develops a Trade Policy,YOUR TURN:Test your understanding by doing related problems 5.7 and 5.8 at the end of this chapter.,Would a free trade agreement with Colombia benefit the United States?,Obama pledged that as president,he would“use trade agreements to spread good labor and environmental standards around the world.”,Evaluate the arguments over trade policies and globalization.,8.5 LEARNING OBJECTIVE,35 of 39,The Argument over Trade Policies and Globalization,Dumping,Dumping Selling a product for a price below its cost of production.,36 of 39,U.S.,Australia Commerce to Leap Forward,Figure 1:The market for wine in Australia after the tariff on California wine is eliminated.,37 of 39,Caterpillar and Other Exporters Oppose“Buy American”Provision,“Buy American”Clause Stirs Up Controversy,AN INSIDE LOOK at Policy,The effect of the“Buy American”provision on the steel market in the United States.,38 of 39,Absolute advantageAutarkyComparative advantageDumpingExportsExternal economiesFree TradeGlobalizationImports,Non-tariff barrierOpportunity costProtectionismQuotaTariffTerms of tradeVoluntary export restraintWorld Trade Organization(WTO),39 of 39,Multinational Firms,A Brief History of Multinational EnterprisesMultinational enterprises(MNEs)Firms that conduct operations in more than one country.Foreign direct investment(FDI)The purchase or building by a domestic firm of a facility in a foreign country.Foreign portfolio investment The purchase by an individual or firm of stocks or bonds issued in another country.,Appendix 8A:Multinational Firms,40 of 39,Multinational Firms,A Brief History of Multinational Enterprises,Appendix 8A:Multinational Firms,41 of 39,Multinational Firms,A Brief History of Multinational Enterprises,