2. Why Nations Trade How does resource distribution affect trade?
What are the differences between absolute and comparative advantage?
What are the major imports and exports of the countries of the world?
How does trade affect employment?

3. Settling in to Penang
Kia Rio
Green tea
udon
pizza
Petrol
Beer

4. Advantages to Trade Lower Prices Different Factor Endowments
Economies of Scale
Increased variety/choice
Ability to acquire needed resources
Competition aiding efficiency
Political Benefits
Growth and development

5. Each country of the world possesses different types and quantities of land, labor, and capital resources.

6. Resource Distribution/Factor Endowments
By specializing in the production of certain goods and services, nations can use their resources more efficiently.
Specialization and trade can benefit all nations.

7. Economies of Scale (and lower prices/increased efficiency)
As firms get larger the specialization of their workforce and the introduction of technology improves productivity.

8. Acquisition of needed resources

9. Competition improves efficiency
In 1984, the year before Proton started, Japanese brands dominated the market. Swedish brands, represented by Volvo (though some Saabs were also sold) were the only other brands which had a significant share. There were no Korean brands sold in Malaysia at that time.

10. Political Benefits The iphone supply chain Theory

11. Increased variety/choices

12. Growth and Development

13. Comparative Advantage
Flaws in Theory of
Comparative Advantage
Doesn’t address winners and losers in the country
Assumes factors within the country are perfectly mobile
Static model - doesn’t address potential for changes
Ignores externalities – positive and negative
Ignores economies of scale
Ignores national security and issues of inter-dependence
Many others…. 13

14. Protectionism and Trade Liberalisation

15. Why Do Countries Limit Trade?
Protect domestic business interests or employment
Health, safety or environmental concerns
Support infant “sunrise” industries
Avoid overspecialization
Prevent dumping
Raise revenue
Protect strategic industry
To improve terms of trade 15

16. Protect domestic business interests or employment

17. Health, safety or environmental concerns

18. Support infant “sunrise” industries
Protect strategic industry

19. Avoid overspecialization

20. Prevent dumping

21. Raise revenue

22. Why Do Countries Trade Freely?
Allocate resources more efficiently
Avoid trade war
Protectionism is a corruption magnet
Domestic complacency causes higher costs
Higher import costs 22

23. Domestic complacency causes higher costs
Allocate resources more efficiently
Domestic complacency causes higher costs

24. Avoid trade war

25. Protectionism is a corruption magnet

26. International Cooperation
Recent trends have been toward lowering trade barriers and increasing trade through international trade agreements.
In 1948, the General Agreement on Tariffs and Trade (GATT) was established to reduce tariffs and expand world trade.
In 1995, the World Trade Organization (WTO) was founded to ensure compliance with GATT, to negotiate new trade agreements, and to resolve trade disputes.

27. Global Trade Agreements
Many nations have formed regional trade organizations. These trade organizations establish free-trade zones, or regions where a group of countries has agreed to reduce trade barriers among themselves.
Major Trade Organization Members
EU CARICOM
MERCOSUR
APEC
NAFTA & APEC
PACIFIC OCEAN
ATLANTIC OCEAN
INDIAN OCEAN