Download Chapter 35 - McGraw Hill Higher Education

Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
24
International
Trade
End Show
24-1
Copyright 2008 The McGraw-Hill Companies
Chapter Objectives
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
• The Graphical Model of Comparative
Advantage, Specialization, and the
Gains From Trade
• How Differences Between World Prices
and Domestic Prices Prompt Exports
and Imports
• How Economists Analyze the Economic
Effects of Tariffs and Quotas
• The Rebuttals to the Most Frequently
Presented Arguments for Protectionism
• How Offshoring relates to the Growing
International Trade in Services
Key Terms
End Show
24-2
Copyright 2008 The McGraw-Hill Companies
Some Key Facts
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
End Show
24-3
• S.A. Trade Deficit $782 Billion in
Goods in 2005
• S.A. Trade Surplus $58 Billion in
Services in 2005
• S.A. Exports Chemicals, Consumer
Durables, Agricultural Products,
Semiconductors
• S.A. Imports Petroleum,
Automobiles, Appliances,
Computers
• Some of Same Categories are
Exported and Imported
• Canada Largest S.A. Partner
Quantitatively
Copyright 2008 The McGraw-Hill Companies
Some Key Facts
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
End Show
24-4
• S.A. Sizable Trade Deficit with
China
• S.A. Dependence on Oil is
Reflected
• S.A. has World’s Highest Trading
Volume
• Exports are 11% of S.A. Output
• China a Major Trade Force
• International Trade Links World
Economies
• International Trade is the Center
of Policy Debates
Copyright 2008 The McGraw-Hill Companies
Some Key Facts
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
Shares of World Exports,
Selected Nations
GLOBAL PERSPECTIVE
Percentage Share of World Exports, 2004
0
Germany
United States
China
Japan
France
Netherlands
Italy
United Kingdom
2
4
6
8
10
10.0
8.9
6.5
6.2
4.9
3.9
3.8
3.8
End Show
Source: World Trade Organization
24-5
Copyright 2008 The McGraw-Hill Companies
12
The Economic Basis for Trade
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
End Show
24-6
•
•
•
•
Labor-Intensive Goods
Land-Intensive Goods
Capital-Intensive Goods
Comparative Advantage
–Graphical Analysis
–Two Isolated Nations
• Constant Costs
• Different Costs
• S.A. Absolute Advantage in
Both Products
• Opportunity Cost Ratio
Graphically…
Copyright 2008 The McGraw-Hill Companies
24.1
The Economic Basis for Trade
(a) South Africa
45
40
40
35
35
30
30
Meat (Tons)
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Meat (Tons)
45
25
20
12
10
A
5
4
Key Terms
5
10
15 18 20
Wheat (Tons)
24-7
20
10
5
End Show
25
15
15
0
(b) Namibia
Copyright 2008 The McGraw-Hill Companies
25
30
0
B
5
8 10
15
Wheat (Tons)
20
The Economic Basis for Trade
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
• Self-Sufficiency Output Mix
• Specializing Based on
Comparative Advantage
– Principle of Comparative
Advantage
• Terms of Trade
– 1W ≡ 1C in the S.A
– 1W ≡ 2C in Namibia
• Gains from Trade
• Trading Possibility Line
– Improved Options
– Added Output
Key Terms
End Show
24-8
Copyright 2008 The McGraw-Hill Companies
24.1
The Economic Basis for Trade
(a) United States
45
C’
40
40
35
C
25
20
A’
15
12
10
A
20
c
B’
5
4
W
5
10
15 18 20
Wheat (Tons)
24-9
Trading
Possibilities Line
25
10
Key Terms
End Show
30
15
5
0
35
Trading
Possibilities Line
Meat (Tons)
30
Meat (Tons)
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
(b) Brazil
45
Copyright 2008 The McGraw-Hill Companies
25
30
0
B
5
w w’
8 10
15
Wheat (Tons)
20
The Economic Basis for Trade
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
• Trade with
Increasing Costs
• The Case for Free
Trade
Key Terms
End Show
24-10
Copyright 2008 The McGraw-Hill Companies
Supply and Demand Analysis
of Exports and Imports
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
• World Price
• Domestic Price
• Supply and Demand in
South Africa
–S.A. Export Supply
• Export Supply Curve
–S.A. Import Demand
Key Terms
• Import Demand Curve
End Show
24-11
Copyright 2008 The McGraw-Hill Companies
Supply and Demand Analysis
of Exports and Imports
S.A. Maize Market
(a) S.A. Domestic
Maize Market
(b) S.A. Export Supply
and Import Demand
Surplus = 100
Sd
1.50
Price (Per Kg; S.A. rand)
1.50
Price (Per Kg; S.A. rand)
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Surplus = 50
1.25
1.25
1.00
1.00
.75
Shortage = 50
50
75
100
125
Quantity of Maize
(Millions of Kgs)
24-12
a
S.A.
Import
Demand
.75
x
Copyright 2008 The McGraw-Hill Companies
y
Dd
0
End Show
b
S.A.
Export
Supply
.50
.50
Shortage = 100
Key Terms
c
150
0
50
Quantity of Maize
(Millions of Kgs)
100
Supply and Demand Analysis
of Exports and Imports
Canadian Maize Market
(a) Canada’s Domestic
Maize Market
Surplus = 100
1.25
1.25
Surplus = 50
.75
.75
r
75
100
125
Quantity of Maize
(Millions of Kgs)
Copyright 2008 The McGraw-Hill Companies
Dd
150
Canadian
Export
Supply
a
Canadian
Import
Demand
.50
.50
50
24-13
s
1.00
1.00
0
End Show
Sd
Price (Per Kg; S.A. rand)
1.50
Shortage = 50
Key Terms
(b) Canada’s Export Supply
and Import Demand
1.50
Price (Per Kg; S.A. rand)
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
t
0
50
Quantity of Maize
(Millions of Kgs)
100
Equilibrium World Price and
Quantity of Exports and Imports
24.2
Price (Per Kg; S.A. rand)
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Supply and Demand Analysis
of Exports and Imports
World Market for Maize
S.A.
Export
Supply
1.00
.88
Canadian
Export
Supply
e
Equilibrium
S.A.
Import
Demand
.75
Canadian
Import Demand
0
Key Terms
50
Quantity of Maize
(Millions of Kgs)
End Show
24-14
Copyright 2008 The McGraw-Hill Companies
100
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
Trade Barriers
•
•
•
•
•
Revenue Tariff
Protective Tariff
Import Quota
Nontariff Barrier (NTB)
Voluntary Export Restriction
(VER)
• Economic Impact of Tariffs
– Direct Effects
•
•
•
•
Decline in Consumption
Increased Domestic Production
Decline in Imports
Tariff Revenue
– Indirect Effect
End Show
24-15
Copyright 2008 The McGraw-Hill Companies
24.2
Trade Barriers
Sd
Sd + Q
Price
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Economic Effects of a Protective
Tariff or an Import Quota
Pd
Pt
Pw
Dd
Key Terms
0
End Show
a
b
Q
c d
Quantity
24-16
Copyright 2008 The McGraw-Hill Companies
Trade Barriers
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
• The Case for Protection: A Critical
Review
– Military Self-Sufficiency Argument
– Diversification-for-Stability
Argument
– Infant Industry Argument
– Protection-Against-Dumping
Argument
– Increased Domestic Employment
Argument
– Cheap Foreign Labor Argument
• Offshoring
Key Terms
End Show
24-17
Copyright 2008 The McGraw-Hill Companies
The WTO Protests
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
End Show
24-18
• Various Protest Groups
Angrily Target WTO
– Environmentalists, Socialists,
Anarchists
• Labor Protections
• Environmental Standards
• Desire to Liberalize Trade
Through Multilateral
Negotiations
• International Labour
Organization (ILO)
Copyright 2008 The McGraw-Hill Companies
Key Terms
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
•
•
•
•
•
•
•
•
•
•
•
•
•
•
labor-intensive goods
land-intensive goods
capital-intensive goods
opportunity-cost ratio
principle of comparative
advantage
terms of trade
trading possibilities line
gains from trade
world price
domestic price
export supply curve
import demand curve
equilibrium world price
tariffs
End Show
24-19
Copyright 2008 The McGraw-Hill Companies
•
•
•
•
•
revenue tariff
protective tariff
import quota
nontariff barrier (NTB)
voluntary export
restriction (VER)
• strategic trade policy
• Dumping
• offshoring
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Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Exchange Rates,
the Balance of
Payments, and
Trade Deficits
Key Terms
End Show
24-20
Copyright 2008 The McGraw-Hill Companies