agenda

Anything New?HomeworkQuizKeynes vs. Hayek Music VideoInternational Economics

Intro to Chapter to Chapter 37HOMEWORK

Read “The Last Word”Chapter 37…Question 12 & 15 and Problems 1, 2 & 4

Anything New?

HomeworkChapter 36

Question 6 and Problems 1, 2

Quiz – Chapter 35 & 36

Theories Revisited

Free Market (F.A. Hayek)

vs.

Keynesian (John Maynard Keynes)

http://www.youtube.com/watch?v=d0nERTFo-Sk

Three Minute Break

International Economics Chapters 37 & 38

International Trade or Globalization

• Based on specialization

• Economic theory is called the Law of Comparative Advantage

• Law of Comparative Advantage was developed by David Ricardo

• Law of Comparative Advantage says (in simple words)…

Do what you do best (specialize) and buy from others what they do best

• Countries are no different than people or businesses

International Economics Chapters 37 & 38

Why Specialize?

Because resources (land, labor, human capital and physical capital) are not equally distributed among countries

International Economics Chapters 37 & 38

Resources (land, labor, human capital and physical capital) are not equally distributed among countries.

•Australia has lots of land•China has lots of labor•US has lots of human capital•Japan has lots of physical capital

So it makes sense that Australia makes stuff that needs land (uggs?), China makes stuff that needs lots of labor (clothes?), the US makes stuff that needs lots of human capital (airplanes?) and Japan makes stuff that needs physical capital (cars?)

International Economics Chapters 37 & 38

Why Specialize?

Because resources (land, labor, human capital and physical capital) are not equally distributed among countries

For example…Canada, the US and Brazil and my breakfast

International Economics Chapters 37 & 38

A few key terms…

Exports – Made in the US, sold in other countries

Imports – Made in other countries, Sold in the US

Trade Surplus = Exports greater than Imports (or imports less than exports)

Trade Deficit = Imports greater than exports (or exports less than imports)

Where is the US currently?

International Economics Chapters 37 & 38

Table 37.1

Figure 37.3

International Economics Chapters 37 & 38

Non Currency ways to manage (influence) trade

1. Tarriffs

2. Quotas

3. Barriers

4. Subsidies

Why manage trade?

International Economics Chapters 37 & 38

Table 37.1

Figure 37.3