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37

International Trade

McGraw-Hill/Irwin Copyright 2012 by The McGraw-Hill Companies, Inc !ll rights reser"e#

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Some Key Trade Facts

LO1

Principal U.S. exports

include:

Principal U.S. imports

include:

Chemicals

Agricultural products

Consumer durables SemiconductorsAircraft

U.S. provides about 8.5%of orld!s e"ports

#etroleum

Automobiles

$etals ousehold appliances Computers

37&'

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Economic Basis for Trade

(ations have different resourceendoments

)abor&intensive goods

)and&intensive goods

Capital&intensive goods

LO2 37&3

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Assumptions *o nations

Same si+e labor force

Constant costs in each countr, -ifferent costs beteen countries

U.S. absolute advantage in both

pportunit, cost ratio Slope of the curve

/egetables sacrificed per ton of beef

LO2

Comparative Advantage

37&0

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Vegetables

(Ton

s)

!

2"

2!

1"

1!

"

!

"

#!

#"

" 1! 1" 2!

$ee% (Tons)

Vegetables

(Ton

s)

!

2"

2!

1"

1!

"

!

"

#!

#"

" 1! 1" 2! 2" !

$ee% (Tons)

(a) United States (b) Mexico

12

1& &

#

A

Z

Comparative Advantage

LO2 37&5

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Comparative Advantage

LO2 37&1

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Comparative Advantage

6ains from trade

*rading possibilities line

Slope euals terms of trade

mproved options Complete speciali+ation

$ore of both goods $ore efficient resource allocation

LO2 37&8

t

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ra e arr ers an xportSubsidies

*ariffs

9evenue tariff

#rotective tariff

mport uota (ontariff barrier :(*4;

/oluntar, e"port restriction :/

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Economic Impact of Taris

-irect effects -ecline in consumption

ncrease in domestic production

-ecline in imports *ariff revenue

ndirect effects

LO# 37&2>

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Economic Impact of Quotas

-ecline in consumption ncrease in domestic production

-ecline in imports

?uotas do not provide for an,government revenue but instead

transfer it to foreign producers

LO# 37&22

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Te Case for !rotection

$ilitar, self&sufficienc, -iversification for stabilit,

nfant industr,

#rotection against dumping

ncreased domestic emplo,ment

Cheap foreign labor

LO" 37&2'

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"ATT

*hree principles@

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European %nion

nitiated in 2=58 as Common $arBetAbolished tariffs and import uotas

beteen member nations

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&AFTA

Agreement beteen U.S. Canadaand $e"ico