1. Copyright 2008 The McGraw-Hill Companies 24-1 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show 24 International Trade

2. Copyright 2008 The McGraw-Hill Companies 24-2 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Chapter Objectives The Graphical Model of Comparative Advantage, Specialization, and the Gains From Trade How Differences Between World Prices and Domestic Prices Prompt Exports and Imports How Economists Analyze the Economic Effects of Tariffs and Quotas The Rebuttals to the Most Frequently Presented Arguments for Protectionism How Offshoring relates to the Growing International Trade in Services

3. Copyright 2008 The McGraw-Hill Companies 24-3 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Some Key Facts S.A. Trade Deficit $782 Billion in Goods in 2005 S.A. Trade Surplus $58 Billion in Services in 2005 S.A. Exports Chemicals, Consumer Durables, Agricultural Products, Semiconductors S.A. Imports Petroleum, Automobiles, Appliances, Computers Some of Same Categories are Exported and Imported Canada Largest S.A. Partner Quantitatively

4. Copyright 2008 The McGraw-Hill Companies 24-4 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Some Key Facts S.A. Sizable Trade Deficit with China S.A. Dependence on Oil is Reflected S.A. has World’s Highest Trading Volume Exports are 11% of S.A. Output China a Major Trade Force International Trade Links World Economies International Trade is the Center of Policy Debates

5. Copyright 2008 The McGraw-Hill Companies 24-5 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Some Key Facts GLOBAL PERSPECTIVE Germany United States China Japan France Netherlands Italy United Kingdom 0 2 4 6 8 10 12 10.0 8.9 6.5 6.2 4.9 3.9 3.8 Source: World Trade Organization Shares of World Exports, Selected Nations Percentage Share of World Exports, 2004

6. Copyright 2008 The McGraw-Hill Companies 24-6 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show The Economic Basis for Trade Labor-Intensive Goods Land-Intensive Goods Capital-Intensive Goods Comparative Advantage –Graphical Analysis –Two Isolated Nations Constant Costs Different Costs S.A. Absolute Advantage in Both Products Opportunity Cost Ratio Graphically… 24.1

7. Copyright 2008 The McGraw-Hill Companies 24-7 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show The Economic Basis for Trade Meat (Tons) 30 25 20 15 10 5 0 35 40 45 51015202530 Wheat (Tons) Meat (Tons) 30 25 20 15 10 5 0 35 40 45 5101520 Wheat (Tons) (a) South Africa(b) Namibia 12 18 8 4 A B

8. Copyright 2008 The McGraw-Hill Companies 24-8 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show The Economic Basis for Trade Self-Sufficiency Output Mix Specializing Based on Comparative Advantage –Principle of Comparative Advantage Terms of Trade –1W ≡ 1C in the S.A –1W ≡ 2C in Namibia Gains from Trade Trading Possibility Line –Improved Options –Added Output 24.1

9. Copyright 2008 The McGraw-Hill Companies 24-9 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show The Economic Basis for Trade Meat (Tons) 30 25 20 15 10 5 0 35 40 45 51015202530 Wheat (Tons) Meat (Tons) 30 25 20 15 10 5 0 35 40 45 5101520 Wheat (Tons) (a) United States(b) Brazil 12 18 8 4 A B A’ B’ C C’ W c w w’ Trading Possibilities Line Trading Possibilities Line

10. Copyright 2008 The McGraw-Hill Companies 24-10 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show The Economic Basis for Trade Trade with Increasing Costs The Case for Free Trade

11. Copyright 2008 The McGraw-Hill Companies 24-11 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Supply and Demand Analysis of Exports and Imports World Price Domestic Price Supply and Demand in South Africa –S.A. Export Supply Export Supply Curve –S.A. Import Demand Import Demand Curve

12. Copyright 2008 The McGraw-Hill Companies 24-12 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Supply and Demand Analysis of Exports and Imports Price (Per Kg; S.A. rand) 1.50 1.25 1.00.75.50 0 5075100125150 Quantity of Maize (Millions of Kgs) 1.50 1.25 1.00.75.50 0 50100 Quantity of Maize (Millions of Kgs) Price (Per Kg; S.A. rand) (a) S.A. Domestic Maize Market (b) S.A. Export Supply and Import Demand DdDd SdSd S.A. Export Supply S.A. Import Demand a b c x y Surplus = 50 Surplus = 100 Shortage = 50 Shortage = 100 S.A. Maize Market

13. Copyright 2008 The McGraw-Hill Companies 24-13 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Supply and Demand Analysis of Exports and Imports Price (Per Kg; S.A. rand) 1.50 1.25 1.00.75.50 0 5075100125150 Quantity of Maize (Millions of Kgs) 1.50 1.25 1.00.75.50 0 50100 Quantity of Maize (Millions of Kgs) Price (Per Kg; S.A. rand) (a) Canada’s Domestic Maize Market (b) Canada’s Export Supply and Import Demand DdDd SdSd Canadian Export Supply Canadian Import Demand a r s t Surplus = 50 Surplus = 100 Shortage = 50 Canadian Maize Market

14. Copyright 2008 The McGraw-Hill Companies 24-14 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Supply and Demand Analysis of Exports and Imports 1.00.75.88 0 50100 Quantity of Maize (Millions of Kgs) Price (Per Kg; S.A. rand) Equilibrium World Price and Quantity of Exports and Imports Canadian Export Supply Canadian Import Demand e World Market for Maize S.A. Export Supply S.A. Import Demand Equilibrium 24.2

15. Copyright 2008 The McGraw-Hill Companies 24-15 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Trade Barriers Revenue Tariff Protective Tariff Import Quota Nontariff Barrier (NTB) Voluntary Export Restriction (VER) Economic Impact of Tariffs –Direct Effects Decline in Consumption Increased Domestic Production Decline in Imports Tariff Revenue –Indirect Effect 24.2

16. Copyright 2008 The McGraw-Hill Companies 24-16 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Trade Barriers Quantity Price 0 DdDd SdSd PdPd Q S d + Q PtPt PwPw abcd Economic Effects of a Protective Tariff or an Import Quota

17. Copyright 2008 The McGraw-Hill Companies 24-17 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Trade Barriers The Case for Protection: A Critical Review –Military Self-Sufficiency Argument –Diversification-for-Stability Argument –Infant Industry Argument –Protection-Against-Dumping Argument –Increased Domestic Employment Argument –Cheap Foreign Labor Argument Offshoring

18. Copyright 2008 The McGraw-Hill Companies 24-18 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show The WTO Protests Various Protest Groups Angrily Target WTO –Environmentalists, Socialists, Anarchists Labor Protections Environmental Standards Desire to Liberalize Trade Through Multilateral Negotiations International Labour Organization (ILO) Last Word

19. Copyright 2008 The McGraw-Hill Companies 24-19 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Key Terms labor-intensive goods land-intensive goods capital-intensive goods opportunity-cost ratio principle of comparative advantageprinciple of comparative advantage terms of trade trading possibilities line gains from trade world price domestic price export supply curve import demand curve equilibrium world price tariffs revenue tariff protective tariff import quota nontariff barrier (NTB) voluntary export restriction (VER)voluntary export restriction (VER) strategic trade policy DumpingDumping offshoring

20. Copyright 2008 The McGraw-Hill Companies 24-20 Some Key Facts The Economic Basis for Trade Supply and Demand Analysis of Exports and Imports Trade Barrier Trade Adjustment Assistance Last Word Key Terms End Show Next Chapter Preview… Exchange Rates, the Balance of Payments, and Trade Deficits