1. February 28th, 2012. Chapter 4 Assignment Questions
Current Economic Issues
Introduction to Chapter 5: Canada & The Global Economy

2. Foxconn and the Spillover Costs or Externalities of the IPhone & IPad

3. International Linkages
What economic flows link the Canadian economy with the economies of other nations?
1. Goods and Services Flows
2. Capital and Labour Flows
3. Information and Technology Flows
4. Financial Flows

4. Canada and World Trade
Canada has a limited domestic market and cannot produce the necessary goods and services to satisfy its people’s wants. Think of our media consumption.
Canada imports what is wants and does not have, such as high-end electronics and media, and exports what it has a surplus of, such as oil and wheat.

5. Trade Patterns
A trade surplus is when we export more goods than we import, and a trade deficit is when we import more than we export.
The U.S.A. is Canada’s most important trading partner, generally counting for 80%.
Recently Canada has been courting China, and vice versa, as a larger trading partner. Why?

6. Why More Trade Since WWII?
Improved Transportation Technology: Pipelines, container ships, airplanes.
Improved Communications Technology: Computers, the Internet, Telephones, Fax.
Declining Tariffs: Tariffs are duties or taxes on imported goods. As they decline, it becomes cheaper to import and export. NAFTA, for instance, was to eliminate tariffs.

7. The Major Players in World Trade
Rank
Country
Exports
Date of information —
World
$14,920,000,000,000
2010 est. 1
European Union
$1,952,000,000,000 2
People's Republic of China
$1,897,000,000,000
2011 est. 3
Germany
$1,543,000,000,000 4
United States
$1,511,000,000,000 5
Japan
$800,800,000,000

8. The Importance of Multi-Nationals
Multi-National Corporations are firms that own production facilities in other countries and produce and sell their product abroad.

9. The Expanded Circular Flow Model
Figure 5-3 on Page 106 in Text.
The Foreign Markets alter our resource allocation. We produce more of some goods, for export, and fewer of others, for import.
Canadian labour and other resources are shifted towards export industries and away from import industries. This helps to enhance our standard of living through specialization.

10. Specialization & Comparative Advantage
Specialization and international trade increase productivity and allow for greater output than would be otherwise possible.
Absolute Advantage: When a region can produce more goods with less resources compared to another region.
Comparative Advantage: When a region can produce a good at a lower domestic opportunity cost than another.

11. The Terms of Trade
The Terms of Trade is the amount of one good that must be given up (opportunity cost) to obtain another. Mexico: (1 Soybean = 4 Corn) or (1 Corn = ¼ Soybean) Canada: (1 Soybean = 3 Corn) or (1 Corn = 1/3 Soybean)
Mexico’s Production Possibilities (Comparative Advantage in Corn)
Product A B C D E
Corn 20 24 40 60
Soybeans 15 10 9 5
Canada’s Production Possibilities (Absolute Advantage in Both)
Product A B C D E
Corn 30 33 60 90
Soybeans 20 19 10

12. Gains from Specialization and Trade
If through negotiation the two nations agree on an exchange rate of one tonne of soybeans for three and a half tonnes of corn, both are better off.
Have Mexico specialize in Corn and Canada specialize in Soybeans. Now have Canada trade half its Soybeans, what happens to Mexico’s PPC?
Mexico’s Production Possibilities
Product A B C D E
Corn 20 24 40 60
Soybeans 15 10 9 5
Canada’s Production Possibilities
Product A B C D E
Corn 30 33 60 90
Soybeans 20 19 10

13. Key Question # 5. Page 123
In groups, complete question #5, in its entirety. Help each other understand how specialization can help both Canada and South Korea in this example.
South Korea has the Absolute advantage in both products, so why would it trade at all?