microeconomics ch 33 international trade

absolute advantage

• when one country can use fewer resources to produce a good compared to another country

• when a country is more productive compared to another country

• the uncontested superiority of a country to produce a particular good better

comparative advantage

• when a country can produce a good at a lower cost in terms of other goods

• one partner makes products cheaper, better, and faster than its trading partner

• an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners

• arises from differences in climate, factor endowments, and tech

by each country specializing in what it does best, the total amount of productio increases and all parties can gain from trade

how does comparative advantage lead to gains from trade?

opportunity cost

• slope of the production possibility frontier illustrates ? of producing oil in terms of corn

straight line

• if the opportunity costs of production are constant then the production possibility frontier is a straight line

gain from trade

post trade consumption point is beyond its PPF bc there has been

gain from trade

• a country that can consume more of both goods than it did wo specialization and trade

specialization

• applies to workers and firms

• economists also use this to describe the occurrence when a country shifts resources to focus on producing a good that offers comparative advantage

exporting

when a market begins to engage in international trade producers in the ? industry may be better off

absolute advantage in everything

• typical for high-income countries that often have well-educated workers, technologically advanced equipment, and the most up to date production processes

• these high income countries can produce all products with fewer resources than a low-income country

• even when one country has ? in all products, trade can still benefit both sides bc gains from trade come from specializing in one’s comparative advantage

mutually beneficial trade

• Even when one country has an absolute advantage in all goods and another country has an absolute disadvantage in all goods, both countries can still benefit from trade.

• Trade allows each country to take advantage of lower opportunity costs in the other country.

• Gains from international trade, on both sides, result from pursuing comparative advantage and producing at a lower opportunity cost.

comparative advantage camper ex.,

• area of camping where their productivity disadvantage is least

value chain

• how a good is produced in stages

splitting up the value chain

• many of the different stages of producing a good happen in different geographic locations

intra-industry trade

international trade of goods within the same industry

reasons for high proportion of intra-industry trade

• division of labor leads to learning, innovation, and unique skills

• economies of scale

intra industry trade stats

• in 2021, US exported $131 billion of autos and imported $317 billion of autos

• about 60% of US trade and 60% of european trade is intra-industry trade

tariffs

• taxes that governments place on imported goods

• traditionally used simply as a political tool to protect certain vested economic, social, and cultural interests

• WTO committed to lowering barriers to trade and oversees trade agreements

anti-dumping

• argued japanese firms were selling displays at “less than fair value” which made it difficult for us firms to compete.

• argument for trade protection is referred to as ?

globalization index

measures the economic, social and political dimensions of globalization

income inequality index

• Gini Index is a summary measure of income inequality

• Gini coefficient incorporates the detailed shares data into a single stat, which summarizes the dispersion of income across the entire income distribution