tailieunhanh - Lecture Principles of Microeconomics: Chapter 7 - James D. Miller

Lecture Principles of Microeconomics - Chapter 7: Trade. After reading this chapter, you should be able to answer the following questions: How does trade affect society? How does trade create wealth? What is absolute advantage? What is comparative advantage? What are the effects of exports and imports? What are tariffs and quotas? What are the additional benefits of trade? What are the arguments against objections to trade? | Chapter 7 Trade McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Learning Objectives How does trade affect society? How does trade create wealth? What is absolute advantage? What is comparative advantage? What are the effects of exports and imports? What are tariffs and quotas? What are the additional benefits of trade? What are the arguments against objections to trade? 7- What Happened to Neanderthals? Neanderthals were intelligent cousins of humans. A plausible theory: Neanderthals’ wealth and population gradually shrank to extinction because they did not trade. By engaging in trade, humans created wealth and survived. 7- Trade Trade allows individuals to specialize and produce more. Trade creates wealth. 7- International Trade: Example 1 Cost One Computer One TV US 1 hour’s work 10 hours’ work Italy 20 hours’ work 1 hour’s work With Trade Hours Worked Computers TVs US 11 6 5 Italy 21 5 16 Without Trade Hours Worked | Chapter 7 Trade McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Learning Objectives How does trade affect society? How does trade create wealth? What is absolute advantage? What is comparative advantage? What are the effects of exports and imports? What are tariffs and quotas? What are the additional benefits of trade? What are the arguments against objections to trade? 7- What Happened to Neanderthals? Neanderthals were intelligent cousins of humans. A plausible theory: Neanderthals’ wealth and population gradually shrank to extinction because they did not trade. By engaging in trade, humans created wealth and survived. 7- Trade Trade allows individuals to specialize and produce more. Trade creates wealth. 7- International Trade: Example 1 Cost One Computer One TV US 1 hour’s work 10 hours’ work Italy 20 hours’ work 1 hour’s work With Trade Hours Worked Computers TVs US 11 6 5 Italy 21 5 16 Without Trade Hours Worked Computers TVs US 11 1 1 Italy 21 1 1 7- International Trade: Example 2 Cost One Computer One TV US 1 hour’s work 10 hours’ work Slow Land 2000 hours’ work 1000 hours’ work Opportunity Cost One Computer One TV US 1/10 of a TV 10 computers Slow Land 2 TVs ½ computer 7- International Trade: Example 2 With Trade :Scenario 2 Hours worked Computers TVs US 110 95 15 Slow Land 30,000 15 15 With Trade: Scenario 1 Hours worked Computers TVs US 20 10 10 Slow Land 20,000 10 10 Without Trade Hours worked Computers TVs US 110 10 10 Slow Land 30,000 10 10 7- International Trade Trade gives an indirect means of production. Trade allows: Either more production with same resources, compared to without trade. Or same production with less resources, compared to without trade. 7- Absolute vs. Comparative Advantage Absolute advantage = If the nation can produce a good using fewer resources than its trading partners. Comparative advantage = If the nation can produce a good at