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Lecture Issues in economics today - Chapter 14

After completing this chapter, students will be able to: Relate why the demand curve of an oligopolist may be kinked, compare the incentives and obstacles to collusion among oligopolists, contrast the potential positive and negative effects of advertising, utilize additional game-theory terminology and applications. | Chapter 14 INTERNATIONAL TRADE: DOES IT JEOPARDIZE AMERICAN JOBS? Chapter Outline WHAT WE TRADE AND WITH WHOM THE BENEFITS FROM TRADE BARRIERS TO TRADE TRADE AS A DIPLOMATIC WEAPON What We Trade: Exports (2000) Good Billions of Dollars of Exports Chemicals 80.3 Food and Agricultural Products 54.2 Computers 196.2 Airplanes and Parts 53.5 Motor Vehicles 79.7 Services 293.5 Total 1,065.7 What We Trade: Imports (2000) Good Billions of Dollars of Imports Computers and Semiconductors 164.9 Petroleum 25.5 Chemicals 71.9 Audio and Video Equipment. 29.0 Motor Vehicles 179.7 Services 217.0 Total 1,441.4 With Whom We Trade Country Exports in billions Imports in billions Balance Canada 178.8 229.2 -50.4 Mexico 111.7 135.9 -24.2 Japan 65.2 146.7 -81.5 China 16.3 100.1 -83.8 Mid East 19.0 38.9 -19.9 Other Asia 119.0 199.0 -80.0 W. Europe 181.3 277.3 -96.0 Africa 11.0 27.6 -17.6 World 782.4 1216.7 -434.3 Comparative and Absolute Advantage Absolute Advantage: the ability to produce a good better, . | Chapter 14 INTERNATIONAL TRADE: DOES IT JEOPARDIZE AMERICAN JOBS? Chapter Outline WHAT WE TRADE AND WITH WHOM THE BENEFITS FROM TRADE BARRIERS TO TRADE TRADE AS A DIPLOMATIC WEAPON What We Trade: Exports (2000) Good Billions of Dollars of Exports Chemicals 80.3 Food and Agricultural Products 54.2 Computers 196.2 Airplanes and Parts 53.5 Motor Vehicles 79.7 Services 293.5 Total 1,065.7 What We Trade: Imports (2000) Good Billions of Dollars of Imports Computers and Semiconductors 164.9 Petroleum 25.5 Chemicals 71.9 Audio and Video Equipment. 29.0 Motor Vehicles 179.7 Services 217.0 Total 1,441.4 With Whom We Trade Country Exports in billions Imports in billions Balance Canada 178.8 229.2 -50.4 Mexico 111.7 135.9 -24.2 Japan 65.2 146.7 -81.5 China 16.3 100.1 -83.8 Mid East 19.0 38.9 -19.9 Other Asia 119.0 199.0 -80.0 W. Europe 181.3 277.3 -96.0 Africa 11.0 27.6 -17.6 World 782.4 1216.7 -434.3 Comparative and Absolute Advantage Absolute Advantage: the ability to produce a good better, faster, or more quickly than a competitor Comparative Advantage: the ability to produce a good at a lower opportunity cost of the resources used The Benefits of Trade: When Comparative and Absolute Advantage are the same Beer Sausage Germany 2 1 Italy 1 2 Suppose there are two countries, Germany and Italy, and two goods, beer and sausage, and the production per unit of labor is shown in the table below. Clearly, there are benefits from trade. If the Germans focus on beer production and the Italians focus on sausage production and they trade with one another more beer and more sausage is available to both countries. The Benefits of Trade: When Comparative and Absolute Advantage are Not the same Beer Sausage Germany 2 3 Italy 1 2 Now suppose the Germans are better at producing both goods. The Germans have an absolute advantage in both but a comparative advantage in only beer. There are still benefits from trade. If the Germans focus on beer production and the Italians focus on sausage .