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Economics for Leaders Voluntary trade… creates wealth Any choice creates an… opportunity cost Both individuals and firms compare marginal benefit to… marginal.

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Presentation on theme: "Economics for Leaders Voluntary trade… creates wealth Any choice creates an… opportunity cost Both individuals and firms compare marginal benefit to… marginal."— Presentation transcript:

1 Economics for Leaders Voluntary trade… creates wealth Any choice creates an… opportunity cost Both individuals and firms compare marginal benefit to… marginal cost to maximize in their decisions Supply & demand determine… prices in a market economy An increase in productivity lowers… the cost of production and output prices An EFL Review

2 Economics for Leaders Lesson 10: International Markets

3 Economics for Leaders

4

5 International Trade Is expanding international trade a good thing or a bad thing? It Depends! Opportunity Cost

6 Economics for Leaders

7 Opening Markets Creates Wealth

8 Economics for Leaders Voluntary trade creates wealth through: Exchange of goods with differing values/opportunity costs Specialization and increased productivity

9 Economics for Leaders What do we specialize in? Lowest opportunity cost production Comparative Advantage

10 Economics for Leaders Is your lowest opportunity cost production the same as Do what you do best?

11 Economics for Leaders A+ C- ??? Lowest Opportunity Cost Production?

12 Economics for Leaders People Trade Nations set trade polices Who Trades?

13 Economics for Leaders Trade Policy Barriers ( limits ) to Trade Tariffs (tax on goods) Quotas (limit on goods)

14 Economics for Leaders NAFTA Evidence:

15 Economics for Leaders

16 WTO (formerly GATT)

17 Economics for Leaders

18 19981999200020012002200320042005200620072008 Canada330365410381371394445499533566600 Mexico173197247233232236267290332347367 China8595116122147181231285343384408 Japan180188211184173170184193207206204 German y 76828889 97109119130143152 UK747885827477829098107172 Korea40546551 49565778 82 83 France424550 4746535661 68 73 Top U.S. Trade Partners Total Trade: Exports Plus Imports Rank by Exports ( US $--billions)

19 Economics for Leaders http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

20 Economics for Leaders http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

21 Economics for Leaders http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

22 Economics for Leaders http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

23 Economics for Leaders Trade Balance Imports Exports

24 Economics for Leaders U. S. Goods Trade Balance With Other Nations, 2008 ($US - billions) CountryExportsImportsTrade Balance Canada261339-78 Mexico151215-64 China69337-268 Japan65139-74 Germany5597-42 EU271367-96 Taiwan2536-11 Korea3548-13 France2944-15 http://www.census.gov/foreign-trade/balance/

25 Economics for Leaders Balance of Payments Current Account Goods & Services Capital account Financial flows

26 Economics for Leaders Pierre Sells (Exports) Bread... Then What?

27 Economics for Leaders What Can Pierre Do with $$US ? Take his Cheri to his favorite bistro at the Eiffel Tower? Mais NON! Buy U.S goods & services OR U.S. assets ? Oui!

28 Economics for Leaders Indicators of Hourly Labor Costs For Production Workers in Manufacturing, Selected Countries, 2004Labor Costs (in $ U.S.)(% of U.S. Labor Cost) United States22.87100 Canada21.42 94 France23.89104 Germany32.53142 Italy20.48 90 Japan21.90 96 United Kingdom24.71108 Hong Kong 5.51 24 Korea 11.52 50 Mexico 2.50 11 Singapore 7.44 33 Sri Lanka 0.51 2

29 Economics for Leaders

30 The “Big Ideas” from Lesson 10: 1.International trade is similar to domestic trade – people choose to trade. 2.Trade allows people to specialize in their lowest opportunity cost production. 3.Comparative advantage encourages specialization and trade, both domestically and internationally. 4.Specialization, based on comparative advantage, increases productivity and economic growth.

31 Economics for Leaders The “Big Ideas” from Lesson 10: 5.Exchange rates reflect the supply and demand for nations’ currencies. Changes in currency values affect the flow of trade. 6.Trade in goods, services, capital, and financial assets always balances.

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