PowerPoint PresentationSlide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Slide 20Slide 211980 280.8 293.8 ____Year Exports Imports Difference1970 57.9 55.8 ____2005 1035.1 2027.8 ____2000 1093.2 1475.3 ____1995 811.9 902.6 ____1990 552.4 629.7 ____2010 1839.8 2356.7 ____2011 2087.6 2665.8 ____Exports 1985% 2010%Foods, feeds, beveragesNon-Food consumer goodsAutomotiveCapital goodsIndustrial supplies11.0 8.4 5.8 13.010.5 8.833.8 34.926.7 30.6Imports 1985% 2010%6.5 4.820.3 25.319.9 11.819.3 23.533.8 31.5Foods, feeds, beveragesNon-Food consumer goodsAutomotiveCapital goodsIndustrial supplies19.013.37.04.53.83.32.93.22.52.1CanadaMexicoChinaJapanEnglandGermanyS. KoreaBrazilNetherlandsHong KongPartner % Exports17.414.311.95.84.52.62.32.22.01.9ChinaCanadaMexicoJapanGermanyS. KoreaEnglandSaudi ArabiaVenezuelaTaiwanPartner % ImportsComparative AdvantageSpecializationAreas that have an advantage in production of a good?ArecaGuns Butter12 013 214 40 6BonsaiGuns Butter16 012 1 8 29 30 4Production Possibilities - MexicoProduct A B C D EAvocados0 20 24 40 60Soybeans15 10 9 5 0Production Possibilities - USProduct A B C D EAvocados0 30 33 60 90Soybeans30 20 19 10 01 S = __ A1 S = __ A1 A = __ S1 A = __ SUS should produce?Mexico should produce?Terms of Trade? ___ A for ___ SWith one unit of resources:- China: 2 tons of wheat or 4 tons of rice-Hungary: 4 tons of wheat or 4 tons of riceOpportunity Costs:Advantage in wheat? __________China 1 t wheat = ___ ton rice 1 t rice = ___ ton wheatHungary 1 t wheat = ___ ton rice 1 t rice = ___ ton wheatAdvantage in rice? __________ChinaHungaryWith one unit of resources:- China: 2 wheat or 4 rice-Hungary: 4 wheat or 4 riceTotals: __ wheat and __ riceWith two units of resources, 1 for wheat 1 for rice:- China: __ wheat and __ rice-Hungary: __ wheat and __ riceTotals: __ wheat and __ riceWith two units of resources, produce good with comparative advantage- China: __ wheat and __ rice-Hungary: __ wheat and __ ricevsTariff-Quota-Dumping-Embargo-SQuantity(automobiles)Qd1SDomesticPwTU VQ1Price DDomesticPw+ t Q2Qd2Trade Restrictions: Impact of a Tariff.Initial imports Tariff = t Imports after tariff• Consider a tariff on autos imports.• Without a tariff, the world price of autos is Pw. At Pw consumers in the U.S. purchase Q1 units … Qd1 from U.S. producers and … Q1 – Qd1 from foreign producers.• A tariff t makes it more costly for Americans to purchase autos from abroad. U.S. prices rise to Pw+ t and purchases fall from Q1 to Q2.• U.S. purchases from domestic producers rise from Qd1 to Qd2 … imports fall to Q2 – Qd2.• Producers gain area S … the tariff generates T tax revenues for the government… areas U & V are deadweight losses from reduction in allocative efficiency.SQuantity(peanuts)Qd1SDomesticPwTU VQ1Price DDomesticP2 Q2Qd2Trade Restrictions: Impact of a QuotaInitial imports Import quota:Q2 – Qd2• Consider a quota on peanuts.• Without trade restraints, Pw (the world price of peanuts) would be the domestic price. At Pw U.S. consumers would purchase Q1 …• A quota of Q2 – Qd2 imports pushes the U.S. price up to P2. • While total U.S. purchases fall (from Q1 to Q2), those from U.S. producers rise (from Qd1 to Qd2) and … imports fall to Q2 – Qd2.• U.S. producers gain area S. Area T goes to foreign producers with permits to import into the U.S. Qd1 from U.S. producers and … Q1 – Qd1 imported from abroad.•U & V are deadweight losses. Note: The government derives no additional revenue from quotas.SQuantity(peanuts)Qd1SDomesticPwTU VQ1Price DDomesticP2 Q2Qd2Trade Restriction ImpactsInitial imports Import quota:Q2 – Qd2SQuantity(automobiles)Qd1SDomesticPwTU VQ1Price DDomesticPw+ t Q2Qd2Initial imports Tariff = t Imports after tariff1. Specialization-2. More goods, lower prices3. Competition1. Infant industries-2. Domestic employment-3. Diversification-4. National security-IMF - loans and financial assistanceGATT / WTO- tariff reductionsEU - European free trade areaNAFTA - North American free trade areaTrue or False1. The purchase of goods and services from abroad is called exporting.2. The largest category of U.S. exports is foods and beverages.3. The country with which the United States carries on the largest amount of international trade is Canada4. The scarcity problem can be eliminated by increasing production through specialization.5. A country is said to have a comparative advantage over another country if it can produce a product at a lower opportunity cost than can the other country6. The availability of appropriate markets and the ability to trade are necessary if countries are to specialize in their production7. Trade restrictions must be imposed between countries if they are to gain the full benefits of production according to comparative advantage.8. A total ban on imports from another country is a quota.9. A tariff is a restriction on the quantity of a product that can enter a country.10. The complete prohibition of trade in a particular commodity with a particular nation is called an embargo11. The prices and availabilities of goods and services should be lower with free trade than with restricted trade12. One of the protectionist arguments is that trade restrictions should be imposed to ensure national security13. The sale of a product in a foreign market at a price below cost is called dumping14. Negotiations under the General Agreement on Tariffs and Trade have resulted in lower tariffs between