TRADE IN A GLOBAL ECONOMY

BENEFITS ISSUES• Specialization

• Increased world output due to specialization

• Increased standard of living around the

world

• Economic interdependence

• Tariffs• Human Rights in the

workplace ( Ex. Sweatshops)

• Fair Trade

INTERNATIONAL TRADE

ABSOLUTE ADVANTAGE:

http://education-portal.com/academy/lesson/absolute-advantage-in-trade-definition-and-examples.html

Absolute Advantage

Comparative Advantage

• The ability of one trading nation to make

a product more efficiently than

another trading nation

• The idea that a nation will specialize in what it can produce at a lower opportunity cost than

any other nation

Absolute vs. Comparative Advantage in Trade

Output in Units Per Day

Lawn Mowing Laundry

Tony 2 12

Jen 5 10

Sample Question:

A. How many loads of laundry can Tony do in a week? ________

How many loads of laundry can Jen do in a week? ______

B. How many lawns can Tony mow in a week? ________

How many lawns can Jen mow in a week? ________

C. Who has the Absolute Advantage in lawn mowing?

________________

D. Who has the Absolute Advantage in laundry?

________________

84

70

14

35

Jen

Tony

Opportunity Cost

Mow lawns Laundry

Tony

Jen

*Hint: You calculate opportunity cost by calculating what you are giving up when you make only one of each item. Ex.) If Jen mows only 1 lawn, how many loads of laundry is she giving up? Put your answer in the table next to Jen under laundry.

Output in Units Per Day

Mow lawns Laundry

Tony 2 12

Jen 5 10

6

2

1/61/2

Who has the Comparative Advantage in lawn mowing?

__________________

Who has the Comparative Advantage in laundry?

__________________

Applying the Law of Comparative Advantage, who

should mow lawns? ___________________

Opportunity Cost

Mow lawns Laundry

Tony

Jen62

1/61/2

Jen

Tony

Jen

Output in units per hour

CARS TV’s

CHINA 200 100

JAPAN 100 500

How many cars can China make in a day? ________

How many tv’s can Japan make in a day? ________

Who has the Absolute Advantage in car production?

________________

Who has the Absolute Advantage in tv production?

________________

1600400

0CHIN

AJAPAN

Output in units per hour

CARS TV’s

CHINA 200 100

JAPAN 100 500

Opportunity Cost

CARS TV’s

CHINA

JAPAN

1/25

21/5

Opportunity Cost

CARS TV’s

CHINA

JAPAN

1/25

21/5

Who has the Comparative Advantage in Car production?

__________________

Who has the Comparative Advantage in tv production?

__________________

Applying the Law of Comparative Advantage, who should

produce Cars? ___________________CHIN

A

JAPAN

CHINA

  Output in Units Per Day

  Cakes Cookies (dozens)

Robin 10 20Jake 15 15

How many Cakes can Robin make in a week? ________

How many dozens of Cookies can Jake make? ________

Who has the Absolute Advantage in Cake production?

________________

Who has the Absolute Advantage in Cookie production?

________________

70

105

Jake

Robin

  Output in Units Per Day

  Cakes Cookies (dozens)

Robin 10 20Jake 15 15

  Opportunity Cost  Cakes Cookies

(dozens)

Robin    

Jake    

*Hint: You calculate opportunity cost by calculating what you are giving up when you make only one of each item. Ex.) If Robin makes only 1 cake, how many dozens of cookies is she giving up? Put your answer in the table next to Robin under cakes.

2

1

1/21

  Opportunity Cost  Cakes Cookies

(dozens)

Robin    

Jake    

Who has the Comparative Advantage in Cake production?

__________________

Who has the Comparative Advantage in Cookie production?

__________________

Applying the Law of Comparative Advantage, who should

produce Cakes? ___________________

2

1

1/21

Jake

Robin

Jake

TRADE AGREEMENT

HOW DO THEY WORK?

EUROPEAN UNION

Bound both economically & politically (member surrender some sovereignty; monetary union (euro), common foreign policy

NAFTA Largest free-trade zone in the world; eliminated tariffs; phase-out of all trade barriers; increased protection for intellectual property & environmental protections

OPEC Group of producers that regulate the production, pricing, and marketing of oil

WTO Help negotiate trade agreements; resolve disputes; monitor trading policies; provide support for developing countries