Economics Journal Global Economics Week of Nov

Trade  Trade is the voluntary exchange of goods and services

What kind of trade is most beneficial?

Absolute Advantage  The ability to produce more units of a good or service than some other producer using the same quantity of resources

Comparative Advantage  The ability to produce a good or service at a lower opportunity cost than another producer.  Comparative advantage is the economic basis for specialization and trade. If individuals and countries specialize in producing the goods in which they have comparative advantage, and trade for the goods in which others have comparative advantage– both parties will be better off

Specialization & Trade  Countries should produce and export goods and services that they can produce at a lower opportunity cost.  Countries should export goods and services for which they have a comparative advantage.

Remember Gilligan vs. Skipper Comparative Advantage Analogy? The link is below in the notes section– if you need a review, please use your headphones

Specialization & Trade  Countries should buy goods and services that they produce at a higher opportunity cost.  Countries should import goods and services for which they have a comparative disadvantage.

Trade based on comparative advantage makes both parties better off!

Comparative Advantage  Trade based on comparative advantage increases consumption possibilities David Ricardo

Terms of Trade  Partners will trade as long as the “price’ of the good each partner is obtaining from trade is less than his opportunity cost of producing the good itself  “good terms of trade” benefit both parties

Learning Goals  Students will be able to…  Describe a variety of trade barriers  Evaluate trade barriers

Define Key Terms on Graphic Organizer  trade barrier: a government-imposed restriction on international trade  tariff: a tax on imported goods  import quota: a limit or cap on the amount of a good that can be imported

Key Terms  subsidy: financial assistance to domestic producers of certain goods and services  embargo: an official ban on trade with another country  protectionism: the use of trade barriers to protect a nation’s industries from foreign competition  trade war: a cycle of increasing trade restrictions

Consider Production of Steel  Alloy of carbon and iron  Made in China, EU, Japan, U.S., India, Russia, S. Korea, Germany  Used in automobiles, appliances, construction, etc.

Your Task on Handout p. 2  Think about the impact of a steel tariff on each group– cost of inputs? Supply? Jobs? Hours Worked?  Decide if each group is being helped or hurt  Record at least one detail explaining your assessment of the impact

The Debate About Trade Barriers In Support of Barriers  Job protection  Shelters infant industries  Improves trade balance  Raises revenue for gov’t  National security In Opposition to Barriers  Creates inefficiency; violates the law of comparative advantage  Restricts economic & technological growth  Leads to trade wars  Raises costs for consumers

Let’s Summarize  Proposed sugar tariff Proposed sugar tariff  See link on website  Do you support the tariff? Why or why not?