chapter 10 international trade
DESCRIPTION
Chapter 10 International Trade. These slides supplement the textbook, but should not replace reading the textbook. Why trade with other nations?. All nations can increase productivity, lower prices, increase jobs and standard of living. Why is trade advantageous for all countries?. - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/1.jpg)
1
Chapter 10International Trade
These slides supplement the textbook, but should not replace reading the textbook
![Page 2: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/2.jpg)
2
All nations can increase productivity, lower prices, increase jobs and standard of living
Why trade with other nations?
![Page 3: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/3.jpg)
3
Because the world’s resources are not evenly distributed around the globe
Why is trade advantageous for all countries?
![Page 4: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/4.jpg)
4
An increase in exports increases GDP
A decrease in exports decreases GDP
How does foreign trade effect GDP?
![Page 5: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/5.jpg)
5
Shifts in the Economy’s PPFAn increase in available resources
Foo
d
ClothingF F'
AA' Without
international trade
With international trade
![Page 6: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/6.jpg)
6
It has something that other countries want
What gives a county’s currency value?
![Page 7: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/7.jpg)
7
The price of one country’s currency measured in terms of another country’s currency
What is a country’s exchange rate?
![Page 8: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/8.jpg)
8
An increase in the number of units of a currency needed to purchase one unit of foreign exchange
What does it mean when a currency is depreciated?
![Page 9: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/9.jpg)
9
A decrease in the number of units of a currency needed to purchase one unit of foreign exchange
What does it mean when a currency is appreciated?
![Page 10: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/10.jpg)
10
The supply and demand for that currency on the international market
What determines the exchange rates of
different currencies?
![Page 11: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/11.jpg)
11
Rates are determined by the forces of demand and supply without government intervention
What are flexible exchange rates?
![Page 12: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/12.jpg)
12
This is called floating
What is it called when currencies are allowed to fluctuate?
![Page 13: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/13.jpg)
13
Foreigners demand a another country’s currency for what that currency can buy in that country
What determines the demand for a currency on the international market?
![Page 14: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/14.jpg)
14
When citizens of a country buy goods and services from another country
What determines the supply for a currency on the international market?
![Page 15: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/15.jpg)
15
price levelsrates of interestrates of growthpolitical & economic stability
What determines different exchange rates? Relative …
![Page 16: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/16.jpg)
16
Equilibrium in the World Market
Quantity on world market
Val
ue
of
the
do
llar
D
SSurplus
Shortage
![Page 17: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/17.jpg)
17
0
Effects of an Increase in Demand
S
D'
D
Val
ue
of
the
do
llar
Quantity on world market
![Page 18: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/18.jpg)
18
0
Effects of an Decrease in Demand
S
D'D
Val
ue
of
the
do
llar
Quantity on world market
![Page 19: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/19.jpg)
19
Effects of a Decrease in Supply
0D
SS’
Val
ue
of
the
do
llar
Quantity on world market
![Page 20: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/20.jpg)
20
Effects of a Increase in Supply
0D
S S’
Val
ue
of
the
do
llar
Quantity on world market
![Page 21: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/21.jpg)
21
A dirty float occurs when a country influences the demand and/or supply of its currency on the international market
What is a dirty float?
![Page 22: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/22.jpg)
22
An exchange rate system that combines features of freely flexible rates with intervention by central banks
What is amanaged float system?
![Page 23: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/23.jpg)
23
A managed float system
What kind of system do we have today?
![Page 24: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/24.jpg)
24
The measure of money that enters and leaves a country via trade with other nations
What is the balance of trade?
![Page 25: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/25.jpg)
25
The value of a country’s imports of goods is less than the value of its exports of goods
What is a favorable balance of trade?
![Page 26: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/26.jpg)
26
The value of a country’s imports of goods is greater than the value of its exports of goods
What is an unfavorable balance of trade?
![Page 27: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/27.jpg)
27
investmentstravelsending gifts
How can money leave or enter a country other than trade?
![Page 28: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/28.jpg)
28
Money can leave a country because of trade - but more money can enter the country in other areas
Can the balance of payments offset the
balance of trade?
![Page 29: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/29.jpg)
29
Summarizes all economic transactions that occur during a given time period between residents of that country and residents of other countries
What is a country’s balance-of-payments?
![Page 30: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/30.jpg)
30
When there is more money entering a country than there is leaving a country
What is a payments surplus?
![Page 31: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/31.jpg)
31
If it is too favorable over time it can cause inflation
When can a payments surplus be a problem?
![Page 32: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/32.jpg)
32
When there is more money leaving a country than there is entering a country
What is a payments deficit?
![Page 33: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/33.jpg)
33
If it is too unfavorable it can cause unemployment
When can a payments deficit be a problem?
![Page 34: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/34.jpg)
34
When the amount of money entering equals the amount of money leaving
At what point is equilibrium reached?
![Page 35: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/35.jpg)
35
With a lot more money entering over a time, a currency will appreciate in value
With a lot more money leaving over time, a currency will depreciate in value
How are Balance of Payments Problems Resolved?
![Page 36: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/36.jpg)
36
The value of a country’s currency fluctuates as the supply fluctuates on the world market
Why is there a balance in the balance of payments?
![Page 37: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/37.jpg)
37
An arrangement whereby the currencies of most countries are convertible into gold at a fixed rate
What is the gold standard?
![Page 38: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/38.jpg)
38
From 1879 to 1914, the international financial system operated under a gold standard
When was the gold standard?
![Page 39: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/39.jpg)
39
Any increase in the money supply would be limited to a country’s gold holdings
What is one advantage of the gold standard?
![Page 40: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/40.jpg)
40
Yes!If countries demanded payment for goods and services in gold we would pay in gold
Did America honor gold payments after
WWI?
![Page 41: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/41.jpg)
41
During the Depression of the 1930’s foreigners demanded payment in gold, thus depleting our gold supply
What happened to this practice of paying in gold?
![Page 42: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/42.jpg)
42
During World War I, the gold standard collapsed, limiting trade during the 1920s and 1930s
When did thegold standard end?
![Page 43: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/43.jpg)
43
The value of each currency was pegged to an ounce of gold
What is the fixed exchange rate system?
![Page 44: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/44.jpg)
44
From about 1945 to 1972
When was the fixed exchange rate system?
![Page 45: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/45.jpg)
45
All foreign exchange rates were fixed in terms of the dollar and the dollar could be converted to gold at a fixed exchange rate
What was the Bretton Woods Agreement?
![Page 46: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/46.jpg)
46
$35 an ounce
Under the Bretton Woods Agreement how much did we agree to
exchange foreign holdings of dollars?
![Page 47: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/47.jpg)
47
1944
When was the Bretton Woods Agreement?
![Page 48: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/48.jpg)
48
An increase in the official pegged price of foreign exchange in terms of the domestic currency
What is currency devaluation?
![Page 49: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/49.jpg)
49
An reduction in the official pegged price of foreign exchange in terms of the domestic currency
What is currency revaluation?
![Page 50: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/50.jpg)
50
Helps facilitate exchange rates by allowing countries to trade currencies
What is the International Monetary Fund?
![Page 51: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/51.jpg)
51
1944
When was the IMF established?
![Page 52: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/52.jpg)
52
How does the IMF help countries?
![Page 53: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/53.jpg)
53
If the U.S. wants to devalue the dollar it will borrow dollars from the IMF and buy other currencies around the world
If the U. S. wants to revalue the dollar it will borrow other currencies from the IMF and buy dollars around the world
![Page 54: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/54.jpg)
54
Each country knew what its currency was worth in relation to foreign currencies
What was the advantage of the fixed
rate system?
![Page 55: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/55.jpg)
55
The inflation in the 1970’s led to a change in the value of all currencies
What happened to the fixed exchange
rate system?
![Page 56: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/56.jpg)
56
In 1972 we uncoupled the dollar from the pegged international monetary system
In what year did the Bretton Woods
System collapse?
![Page 57: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/57.jpg)
57
Yes!By each country specializing in certain exports non-productive activity is lessened
Does specialization increase productivity?
![Page 58: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/58.jpg)
58
In those goods and services that it has a comparative advantage
What should a country specialize?
![Page 59: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/59.jpg)
59
Producing something with lower opportunity costs than others
What is comparative advantage?
![Page 60: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/60.jpg)
60
Producing something better than others
What is absolute advantage?
![Page 61: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/61.jpg)
61
It should produce those things in which it has a comparative advantage
What should a country produce?
![Page 62: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/62.jpg)
62
Even if Americans were best at making wicker baskets our opportunity costs would be very high in this activity
What is an example of comparative advantage?
![Page 63: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/63.jpg)
63
If a country has a comparative advantage in a product that product should be produced if the job can be done good enough
What is the good enough rule?
![Page 64: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/64.jpg)
64
differences in resourceseconomies of scaledifferences in tastes
What are the reasons for international specialization?
![Page 65: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/65.jpg)
65
When the world price is ...> our price, export
< our price, import
= our price, will not trade
When will we trade?
![Page 66: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/66.jpg)
66
When the high wage worker is a lot more productive than the low wage worker
When would a high wage worker be cheaper than a
low wage worker?
![Page 67: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/67.jpg)
67
• Infrastructure• Capital• Education• Skills • Attitude
What makes one worker more productive than
another? Better
![Page 68: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/68.jpg)
68
There are good and bad reasons for trade restrictions
Why havetrade restrictions?
![Page 69: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/69.jpg)
69
tariffsimport quotasexport subsidieslicensing agreementunreasonable standards
How do werestrict trade?
![Page 70: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/70.jpg)
70
Specific - applied to a specific good, like a barrel of oil
Ad Valorem- a percentage of the price of imports at the port of entry
What are two types of tariffs?
![Page 71: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/71.jpg)
71
An increase in pricesA decrease quantity in supplied
A lower standard of living
What are the effects of a tariff or quota?
![Page 72: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/72.jpg)
72
The practice of selling a commodity abroad at a price that is below its cost or below the price charged in the home market
What is dumping?
![Page 73: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/73.jpg)
73
What are the three types of dumping?
![Page 74: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/74.jpg)
74
Predatory is when the purpose of dumping is to drive competitors out of the market, this is rareLong-term is when there are economic reasons that a product can be sold at a low price, for example, less competitionSporadic occurs when there are excess inventories
![Page 75: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/75.jpg)
75
What are arguments for tariffs and quotas?
![Page 76: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/76.jpg)
76
National defense Protect infant industries Protect against predatory dumping Reduce unemployment Protect temporary declining industries Promote variety
![Page 77: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/77.jpg)
77
What are arguments against trade restrictions?
![Page 78: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/78.jpg)
78
Leads to retaliation
Subsidizes weakness
Works against comparative advantage
Problems with policing & enforcing
Encourages rent seeking
![Page 79: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/79.jpg)
79
Treat all nations equallyReduce tariff rates Reduce import quotas
What is theWorld Trade
Organization (WTO)?
![Page 80: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/80.jpg)
80
A market in Europe begun in 1958 as a way of creating barrier-free trade in Europe
What is the Common Market?
![Page 81: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/81.jpg)
81
Passed during the Clinton Administration to remove barriers of trade with Mexico
What is North American Free Trade Agreement
(NAFTA)?
![Page 82: Chapter 10 International Trade](https://reader033.vdocument.in/reader033/viewer/2022061514/56815a9c550346895dc82082/html5/thumbnails/82.jpg)
82
END