ECON 101 Lecture Notes - Lecture 9: Comparative Advantage, International Trade, Autarky
The united states in the international economy:
ā factors that have increased international trade:
ā decreasing costs of shipping products around the world
ā spread of inexpensive and reliable communications
ā changes in government policies
ā tariff: a tax imposed by government on imports
ā imports: goods and services bought domestically but produced in other countries
ā rate has gone down substantially over time
ā most tariffs between Canada, Mexico and the US were eliminated
ā Exports: goods and services produced domestically but sold in other countries
The importance of trade to the U.S. economy:
ā U.S. consumers buy increasing quantities of goods and services produced in other countries
ā also sell increasing quantities
ā not a sectors of US econ. are affected equally by international trade
ā a large % of us agricultural production is exported
ā 2/3 of manufacturing industry depend on exports for at least 10 jobs
U.S. International Trade in a World Context:
ā US = second largest exporter in the world (behind china)
ā International trade = less important to the US than it is to many other countries, with imports and
exports being lower % of FDP
ā iī
¶ sī
µaller couī
¶tries itās a lot ī
µore iī
µportaī
¶t
Comparative Advantage in International Trade:
ā governments are more likely to interfere with international trade than the are with domestic trade
ā reasons are more political than economic
A brief review of comparative advantage:
ā comparative advantage: the ability of an individual, a firm, or a country to produce a good or service
at a lower opportunity cost than competitors
ā opportunity cost: the highest valued alternative that must be given up to engage in an activity
Comparative Advantage and Absolute Advantage:
ā countries are better off if they specialize in producing the goods for which they have a comparative
advantage
How countries gain from international trade:
ā Autarky: a situation in which a country does not trade with other countries
Increasing consumption through trade:
ā terms of trade = the ratio at which a country can trade its exports for imports from other countries
ā both will be able to consume more than they could w/o trade
Why doī
¶āt we see coī
µplete specialization:
ā many goods and services are produced in more than one country -
ā not all goods and services are traded internationally:
ā some goods are specific from country to country
ā Production of most goods involves increasing opportunity costs
ā tastes for products differ:
ā most products are differentiated -come with a wide variety of features and
preferences change from country to country
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The united states in the international economy: factors that have increased international trade: Decreasing costs of shipping products around the world. Changes in government policies spread of inexpensive and reliable communications tariff: a tax imposed by government on imports imports: goods and services bought domestically but produced in other countries rate has gone down substantially over time. Most tariffs between canada, mexico and the us were eliminated. Exports: goods and services produced domestically but sold in other countries. The importance of trade to the u. s. economy: U. s. consumers buy increasing quantities of goods and services produced in other countries. Not a sectors of us econ. are affected equally by international trade. A large % of us agricultural production is exported. 2/3 of manufacturing industry depend on exports for at least 10 jobs. Us = second largest exporter in the world (behind china)