International Trade

Chapter 24

Chapter 37 Figure 37.1Production Possibilities,

U.S. and Brazil

Chapter 37 Table 37.1

Gains from Trade

In the example In the U.S.

Each ton of wheat costs one ton of coffee to produce Each ton of coffee costs one ton of wheat

But in Brazil Each ton of wheat costs two tons of coffee Each ton of coffee costs one-half ton of wheat

The U.S. has a comparative advantage in wheat

because wheat only cost us one ton of coffee to produce, but costs Brazil two tons of coffee

Brazil has a comparative advantage in coffee, because coffee only costs them one-half ton of

wheat, but costs us one ton of wheat

Chapter 37 Figure 37.1Production Possibilities,

U.S. and Brazil

Gains from trade I If we produce wheat it costs us only

one ton of coffee But it would cost Brazil two tons of

coffee U.S. is the low-cost producer of wheat We benefit if we sell wheat to Brazil at

any price above one ton of coffee Brazil benefits as long as the cost is

less than two tons of coffee

Gains from trade II Brazil is the low-cost producer of coffee It costs them one-half ton of wheat for

every ton of coffee they produce It would cost us one ton of wheat to

grow a ton of coffee in the U.S. We benefit from trade as long as we pay

less than one ton of wheat Brazil benefits as long as we pay more

than one-half ton of wheat for every ton of coffee

Terms of Trade

Any price between 1W = 1C and 1W = 2C is possible

The textbook uses 1W = 1.5C (or 1C = .75W)

Chapter 37 Figure 37.2Trade Benefits Both

Countries

Chapter37 Figure 37.3Domestic and World

Markets for Aluminum

Chapter 37 Figure 37.4Canada and the World

Market for Aluminum

Chapter 37 Figure 37.5

Equilibrium World Price

Chapter 37 Figure 37.6

Tariffs and Import Quotas