international economics. absolute vs comparative advantage absolute: a country’s ability to...
TRANSCRIPT
![Page 1: International Economics. Absolute vs Comparative Advantage Absolute: a country’s ability to produce more of a given product than another country Comparative:](https://reader031.vdocuments.net/reader031/viewer/2022020106/56649e105503460f94afbbd8/html5/thumbnails/1.jpg)
International Economics
![Page 2: International Economics. Absolute vs Comparative Advantage Absolute: a country’s ability to produce more of a given product than another country Comparative:](https://reader031.vdocuments.net/reader031/viewer/2022020106/56649e105503460f94afbbd8/html5/thumbnails/2.jpg)
Absolute vs Comparative Advantage
• Absolute: a country’s ability to produce more of a given product than another country
• Comparative: a country’s ability to produce a product more efficiently than another country (lower opportunity cost) [Example: Say you have John who makes $300 an hour and he hires a maid who works for $25 an hour. It takes John 1 hour to clean his house compared to his maid who takes 8 hours to clean his house. John has an absolute advantage over his maid but the maid has a comparative advantage. This is because if John cleans his house by himself, he loses $300. If he hires the maid, he makes a profit of $100.]
![Page 3: International Economics. Absolute vs Comparative Advantage Absolute: a country’s ability to produce more of a given product than another country Comparative:](https://reader031.vdocuments.net/reader031/viewer/2022020106/56649e105503460f94afbbd8/html5/thumbnails/3.jpg)
Another example…
Coconuts FishA 10 10
B 4 8
The 10 represents the coconuts of A if that’s all they do. If they spend half their time getting coconuts, they’d have 5 coconuts and 5 fish. The same is true of B. If they specialize and trade, they both benefit.
![Page 4: International Economics. Absolute vs Comparative Advantage Absolute: a country’s ability to produce more of a given product than another country Comparative:](https://reader031.vdocuments.net/reader031/viewer/2022020106/56649e105503460f94afbbd8/html5/thumbnails/4.jpg)
Balance of payments• The difference between the amount paid and
the amount received in international trade.• Protectionists vs. Free-traders: trade barriers
to protect US industries (like steel) vs. those who oppose trade barriers.
• Defense: produce own weapons at higher cost & lower efficiency or import weapons?
• Protecting jobs: should we, or should companies compete?
![Page 5: International Economics. Absolute vs Comparative Advantage Absolute: a country’s ability to produce more of a given product than another country Comparative:](https://reader031.vdocuments.net/reader031/viewer/2022020106/56649e105503460f94afbbd8/html5/thumbnails/5.jpg)
Trade Barriers• Tariffs: tax on imports (hurts international trade—
almost stopped in 1930s!) • Most Favored Nation clause: country that gets
same tariff reduction as another country (China)• NAFTA: North American Trade Agreement (1993):
reduced tariffs between Canada, the US & Mexico• Very controversial—predicted huge job losses• Some jobs lost to Mexico, but not many• DRAMATIC growth in trade between the 3
![Page 6: International Economics. Absolute vs Comparative Advantage Absolute: a country’s ability to produce more of a given product than another country Comparative:](https://reader031.vdocuments.net/reader031/viewer/2022020106/56649e105503460f94afbbd8/html5/thumbnails/6.jpg)
More barriers to trade…• Embargo: restriction on export or import of a
commodity in trade (oil)• Quota: limit on the amount of a good that can be
allowed into a country (Japanese cars in the US in 1970s—drove prices of all cars up)
• Subsidy: government payments to encourage an economic activity (milk, corn, wheat, soybean farmers)
• Standards: ways to keep imported products out of a country: Health inspections on Argentina’s beef, license to import, irradiated beef
![Page 7: International Economics. Absolute vs Comparative Advantage Absolute: a country’s ability to produce more of a given product than another country Comparative:](https://reader031.vdocuments.net/reader031/viewer/2022020106/56649e105503460f94afbbd8/html5/thumbnails/7.jpg)
Cooperation in trade
• European Union [EU]: formed in 1993
• No barriers regulating the flow of capital, workers, or goods & services between member countries
• Common passports—can travel anywhere to trade, invest, vacation, work, etc.
• 2002: euro introduced—common currency replaced individual currencies
![Page 8: International Economics. Absolute vs Comparative Advantage Absolute: a country’s ability to produce more of a given product than another country Comparative:](https://reader031.vdocuments.net/reader031/viewer/2022020106/56649e105503460f94afbbd8/html5/thumbnails/8.jpg)
Other economic communities…
• ASEAN: Association for Southeast Asian Nations (1967): Indonesia, Malaysia, Singapore, Philippines, Thailand
• Works to promote peace, stability, growth & liberal free trade policies
• OPEC: Organization of Petroleum Exporting Countries (mostly in Middle East): formed in 1960 to restrict production to raise prices
![Page 9: International Economics. Absolute vs Comparative Advantage Absolute: a country’s ability to produce more of a given product than another country Comparative:](https://reader031.vdocuments.net/reader031/viewer/2022020106/56649e105503460f94afbbd8/html5/thumbnails/9.jpg)
Exchange rates• Foreign exchange rate: the price of one country’s
currency in terms of another country’s currency (flexible/floating)
• Demand for foreign products pushes dollar’s value down, make imports more expensive
• Dollar’s value reflects health of US economy• Trade deficit: value of imports exceeds value of
exports—reduces dollar’s value, rising unemployment
• Trade surplus: value of exports exceeds value of imports—raises dollar’s value, falling unemployment
![Page 10: International Economics. Absolute vs Comparative Advantage Absolute: a country’s ability to produce more of a given product than another country Comparative:](https://reader031.vdocuments.net/reader031/viewer/2022020106/56649e105503460f94afbbd8/html5/thumbnails/10.jpg)
Exchange rate tableCode Country Units/USD USD/UnitARP Argentina (Peso) 2.9450 0.3396AUD Australia (Dollar) 1.5205 0.6577 BSD Bahamas (Dollar) 1.0000 1.0000BRL Brazil (Real) 2.9149 0.3431CAD Canada (Dollar) 1.3659 0.7321
USD: US Dollar
Units/USD: dollar exchange rate in other currency ($1.00=2.94 pesos)
USD/Units: other currency’s exchange rate to the dollar (1 peso=34 cents)