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Lecture Issues in economics today - Chapter 16

When you finish this chapter, you should: Define the key terms of economics and opportunity cost and understand how a production possibilities frontier exemplifies the trade-offs that exist in life, distinguish between increasing and constant opportunity cost and understand why each might happen in the real world, analyze an argument by thinking economically, while recognizing and avoiding logical traps. | Lecture Issues in economics today - Chapter 16 Chapter 16 NAFTA GATT WTO Are Trade Agreements Good For Us McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Chapter Outline THE BENEFITS OF FREE TRADE WHY DO WE NEED TRADE AGREEMENTS TRADE AGREEMENTS AND INSTITUTIONS ECONOMIC AND POLITICAL IMPACTS OF TRADE THE BOTTOM LINE McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. NAFTA GATT and the WTO NAFTA North American Free Trade Agreement An agreement between the United States Canada and Mexico to have substantially free trade. Some tariffs and quotas are permissible under certain circumstances. GATT General Agreement on Tariffs and Trade A multi-nation agreement specifying conditions under which tariffs quotas and non-tariff barriers are permissible. WTO World Trade Organization An organization designed to settle trade disputes. McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. The Benefits of Free Trade Free trade makes each trading partner better off than it would have been without trade. Countries export goods to other nations because the producing country can make the good at a lower opportunity cost than the importing country. McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. A Simple Example Number of workers produces Amount of Output High Tech Low Tech High Low High Low Skill Skill Skill Skill US 1produces 1 2 produce 1 1 produces 4 1 produces 3 Mexico 3 produce1 4 produce 1 1 produces 3 1 produces1 US exports high-tech products to Mexico and Mexico exports low-tech products to the US and both are better off than if they produced the goods themselves. McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Why Do We Need Trade Agreements It is logical to ask if trade is so good why do we need an agreement to engage in it The answer is that a country can make itself better off by engaging in Strategic Trade Policies designed to get more of the .