Lynch Economics Unit 5

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The key idea behind trade/specializing.
Efficiency
Some people/countries are able to produce things better than
others (cheaper, easier, etc)
If you are more efficient at producing a product than another
Comparative Advantage
country
Opportunity Cost The lowest of this = what you have a comparative advantage in
Country produce products they have a comparative advantage in
SPECIALIZE & trade with other countries for other products. This is much more
efficient than trying to produce everything yourself.
Same as specializing, except in an individuals life. It's more effi-
Jobs cient to earn money by this than to try and produce everythign
(food, shelter, etc etc ) for yourself
General cheer! do what you do best (Comparative Advantage) &
Do what you do best, trade for the rest
trade is always more efficient
(Also called Globalization)
Global Economy We live in a world-wide economy where things can be produced
whereever the comparative advantage is
Better at EVERYTHING.
Absolute Advantage
Key is though, still worth it to specialize in BEST what you have
the biggest advantage in and trade!
Imports goods brought from another country
Exports goods sent to another country
Balance of Trade Exports - Imports
Negative Balance of Trade
((When you import more than you export)
Trade Deficit
Pro: Lots of cheap stuff/quality of life
Con: Lost Jobs
Organization of Petroleum Exporting Countries They control a lot
OPEC
of oil and we import a lot from them.
1) Tariff
2) Quota
Types of Trade Barriers 3) Safety or Standard
4) Embargo
5) Subsidy
tax on foreign product. Obviously people buy less of that taxed
Tariff
product and more of their own countries items.
Legal Limit on how much a country can bring in. You can use the
Quota
law to prevent something from coming here.
You don't allow a certain product because as a gov't you don't think
Safety or Standards
it's safe enough for your country or produces too much pollution
when you use your countries tax money to help your own countries
Subsidy businesses. This gives them a competitive advantage vs. foreign
businesses.
just an extreme quota used for Political Purposes to punish a
Embargo
country
Generally the idea not to use Trade Barriers

Free Trade Creates More Supply and More Choices

Generally good for Consumers as it lowers prices

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The idea that we should limit free trade via a trade barrier

Protectionism Generally lowers supply and raises prices so is bad for your
contries consumers
but is good for your countries jobs/businesses
Protectionism Arguement:

Aiding the National Defense Even if specialization would be better & more efficient, it's impor-
tant to have certain industries like steel/cars. If you relied just on
other countries what would happen in a war?
Protectionism Arguement:

Promoting Infant Industries this should be temporary help to help a type of business grow in
your country so it can compete with bigger/older/powerful foreign
businesses
Protectionism Arguement:

The idea being it's good for America for American businesses to
Protecting Domestic Jobs or Industry
live and US workers have jobs.

certain companies/industries are a source of national pride.

Protectionism Arguement:
Keep the Money at Home
idea that USA dollars should be spent in USA to keep them circling
around our economy.
Protectionism Arguement:
National Pride
certain companies/industries are a source of national pride.
Aiding National Defense
Promoting Infant Industries
List of Protectionism Arguments Protecting Domestic Jobs or Industry
National Pride
Keep the Money at Home
(Same as pros of Free Trade or Cons of Protectionism)
Pros of Walmarts
Lots of cheap stuff to raise quality of life
(Same as Cons of Free Trade or Pros of Protectionism)
Cons of Walmarts
Less US Jobs
Depends on each other
Interdependence
In todays Global Economy, countries are more interdependant
than ever.
Showed Global Interdependance
Japanese Tsumani
Damaged Japanese Factories didnt make parts, so some US
factories closed down temporarily because of them
Sometimes Economic Interdependence = Good. Other countries
booming gives us a place to sell US products.
Pros and Cons of Economic Interdependance
Sometimes Economic Interdependence = BAD. Bad times are
likely a catchy cold or like one country following another off a cliff.
Basically world population is ever increasing.
Global Population Growth
This leads to more and more global interdependance as more and
more trade options
NAFTA Stands for North American Free Trade Association

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NAFTA purpose
NAFTA countries
NAFTA cons
Foreign Exchange Rate
Foreign Exchange Rate Manipulation
Fair Trade
Dumping
Developing Countries
Third World Countries
Developing Country Problems
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Reduce Tariffs and promote Trade in North America
United States + Canada + Mexico
Claim that American jobs have moved to Mexico
how much one countries money is worth in terms of another
Idea that countries sometimes set thier moneys value lower than
it should be by law to give them an unfair advantage in foreign
trade
Idea, that markets should be where everyone benefits. That if
one side does something unfair (manipulates currency or uses
safety more as an excuse) then trade barriers should be used in
punishment
When foreign countries sell their goods in another country below
the actual cost of production
Countries with Low Average Income &:
1) less developed infrastructure (roads/bridges)
2) less health care
3) less technology
4) less education
Another nickname for poor/developing countries
It can be very challenging going from to develop because of
problems like:
1) debt
2) lack of education
3) disease
4) Government Corruption