1. International Trade
ECN 211: Dr. KUMAR

2. Why trade with other countries?
Answer: Mutual Benefits/ Bigger profits! Economic theory suggests that
countries should trade with one
another if and only if both countries gain more by international trade than from domestic trade!

3. Four Basic Questions Why trade with other countries?
Whom to trade with and what products to use to trade with ?
Who or what decides the exchange process?
What are the effects of trade on businesses, jobs and consumers?

4. How do we study “comparartive advantage”
Answer: By making use of the
Two by Two model
derived from the theory

5. Two by Two Model Two countries only-U.S & China
Two products only in each country-Computers and automobiles
Full employment and Full Production in both
Constant costs in both
Closed/private economies in both

6. United States A 40 B
Automobiles C D 12 F 28 40
Computers

7. China X 20 L
Automobiles M Y 4 Z 8 10
Computers

8. Whom to trade with and what products to use... ?
Answer: “Comparative advantage” Each country will attempt to export only those products which it can make more efficiently than other countries and import those which it cannot.

9. As a country the U. S. needs to export computers. Why
As a country the U.S. needs to export computers! Why? Because of the production numbers listed below
Production ratio
1 computer: 2 automobiles
Production ratio
1 computer: 1 automobile
United States

10. What are the effects of trade on businesses, jobs and consumers?
Answer: Businesses and workers
associated with the export industries benefit because of trade while companies facing import competition suffer.
Customers in both the countries invariably benefit enormously.
Overall, both countries and their economic systems also benefit.

11. United States A’ A 40 B Consumption Possibilities After trade
Automobiles C D’ 18 12 D F 28 40
Computers

12. China X 20 L Consumption Possibilities After trade Automobiles M Y 4Z 8 10 12 Z’
Computers