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Lecture #11 - Oct 24.docx

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Department
Economics
Course
Economics 1021A/B
Professor
Michael Parkin
Semester
Fall

Description
Nicole Wallenburg Economics Mr. Parkin Oct 24, 2011 Economics – Lecture #11 How Global Markets Work Because we trade with people in other countries, the goods and services that we can buy and consume are not limited by what we can produce.  Imports are the good and services that we buy from people in other countries.  Exports are the goods and services we sell to people in other countries. International Trade Today  Global trade today is enormous.  In 2010, global exports and imports were $36 trillion—more than half the value of global production.  In 2010, total Canadian exports were $476 billion, which is about 29 percent of the value of Canadian production.  In 2010, total Canadian imports were $508 billion, which is about 31 percent of the value of Canadian production.  Services are 13 percent of total Canadian exports and 18 percent of total Canadian imports. What Drives International Trade?  The fundamental force that generates trade between nations is comparative advantage.  The basis for comparative trade is divergent opportunity costs between countries.  National comparative advantage is the ability of a nation to perform an activity or produce a good or service at a lower opportunity cost than any other nation o The opportunity cost of producing a T-shirt is lower in China than in Canada, so China has a comparative advantage in producing T-shirts. o The opportunity cost of producing a regional jet is lower in Canada than in China, so Canada has a comparative advantage in producing regional jets. o Both countries can reap gains from trade by specializing in the production of the good at which they have a comparative advantage and then trading. o Both countries are better off. Imports Exports
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