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Chpter 34: International trade, Comparative Advantage and Protection

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Caren Keith Cruz

on 17 February 2013

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Transcript of Chpter 34: International trade, Comparative Advantage and Protection

International trade, Comparative Advantage
and protectionism Trade Deficits - When a country imports more
than it exports.
Trade Surplus - When the country exports more
than it imports. The Economic Basis for Trade:
Comparative Advantage Corn Laws - the tariffs subsidies and restrictions
enacted by the british parliament in the early
nineteenth century to discourage imports and
encourage exports of grain.
Theory of Comparative Advantage - David Ricardo's
theory that specialization and free trade will
benefit all trading partners (real wages will rise)
even those that may be absolutely less
efficient producers. Absolute Advantage
Versus Comparative Advantage Absolute advantage refers to a country’s
ability to produce a certain good more efficiently
than another country while Comparative advantage
refers to a country’s ability to produce
a particular good with a lower opportunity
cost than another country.
Terms of Trade The ratio of which a country can trade domestic
products for imported products. Exchange Rates between two currencies is the rate
at which one currency will be exchanged for another.
It is also regarded as the value of
one country’s currency in terms
of another currency. Trade Surpluses and Deficits The Heckscher-Ohlin Theorem Just as individuals have different endowments
of attributes, including such things as skill,
intelligence, and physical characteristics,
regions have different factor endowments.
These include such things as the amount
and quality of land, number of people,
amount of human and physical capital,
endowment of natural resources,
and more. The idea that an economy’s comparative
advantage stems from its factor endowments is
known as the Heckscher-Ohlin theorem,
named after the two economists who first
proposed it. Thus, India has a comparative
advantage in producing textiles, a labor-intensive process,
because it is well endowed with unskilled labor,
while Japan has a comparative advantage in
producing electronic equipment because it
is richly endowed with capital
and skilled labor. Other Explanations for
Observed Trade Flows TRADE BARRIERS: TARIFFS EXPORT SUBSIDIES, AND QUOTAS Trade Barriers also called obstacles
to trade take many forms.
The three most common are: Tariff - is a tax on imports. Export Subsidies - government payment made
to domestic firms to encourage exports. Quota - is a limit on the
quantity of imports. FREE TRADE OR PROTECTION the case for Free trade
The case for Protection THANK YOU! That concludes the Chapter 34: International trade, Comparative Advantage and protectionism Chapter 34
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