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GAINS FROM INTERNATIONAL TRADE

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by

Todd Cota

on 13 October 2016

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Transcript of GAINS FROM INTERNATIONAL TRADE

International Trade:

The Importing & Exporting of G&S between countries.

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SPECIALIZATION: ALLOWS FOR INCREASES IN DOMESTIC PRODUCTION & CONSUMPTION
WHEN A COUNTRY/FIRM/INDIVIDUAL CONCENTRATES PRODUCTION ON ONE OR A FEW G&S.
PRODUCED VIA FACTOR ENDOWMENTS (Q&Q OF FOP)
LOW COST -- EFFICIENT ALLOCATION OF RESOURCES FOR PRODUCTION
TRADE WITH OTHER COUNTRIES FOR THEIR EFFICIENTLY PRODUCED GOODS
INCREASES OUTPUT
HIGH COST G&S NOT PRODUCED (RATIONS SCARCE RESOURCES)
WORLD TRADE ORGANIZATION (WTO)
WHAT ARE THE FUNCTIONS OF THE WTO?
WORLD TRADE ORGANIZATION
1. SPECIALIZATION
3. LOWER PRICES
INCREASED COMPETITION & EFFICIENCY OF FIRMS LEADS TO LOWER PRICES
DIFFERENCES IN THE Q/Q OF THE FOP WITHIN DIFFERENT COUNTRIES
4. GREATER CHOICE

INCREASED VARIETY OF QUALITY AND QUANTITY OF GOODS & SERVICES FOR DOMESTIC CONSUMERS
5. DIFFERENCES IN RESOURCES
COUNTRIES VARY IN THE RESOURCES NEEDED FOR PRODUCTION OF VALUE ADDED GOODS
IMPORT COMMODITIES & CAPITAL GOODS FOR PRODUCTION
E.G. OIL, TIMBER, MINERALS, MACHINERY
EXPORT G&S TO EARN FOREIGN CURRENCY TO BUY REQUIRED RESOURCES
6. FLOW OF NEW IDEAS AND TECHNOLOGY
TRADE FACILITATES A MOVEMENT OF IDEAS, TECHNOLOGY AND IDEAS TO BE TRANSFERRED FROM ONE COUNTRY TO ANOTHER
7. INCREASED COMPETITION
LEADS TO GREATER EFFICIENCY
CONSUMERS BENEFIT FROM LOWER PRICES
QUALITY AND VARIETY OF G&S AVAILABLE INCREASES
8. SOURCE OF
FOREIGN EXCHANGE
TRADE ALLOWS FOR FOREIGN EXCHANGE OF CURRENCIES
ESPECIALLY IMPORTANT FOR DEVELOPING COUNTRIES
9.
TRADE AS AN 'ENGINE FOR GROWTH'
INCREASED SPECIALIZATION, ACQUISITION OF NEEDED RESOURCES, INCREASED COMPETITION, TECHNOLOGICAL ADVANCES AND EXPANDING MARKETS INCREASE DOMESTIC OUTPUT
10. INTERDEPENDENCE
REDUCES THE POSSIBILITY OF HOSTILITIES & VIOLENCE
PROVIDES INSTITUTIONAL & LEGAL FRAMEWORK FOR TRADING SYSTEM BETWEEN MEMBER NATIONS
159 MEMBERS
27 OBSERVER COUNTRIES
MEMBERS COMPRISE 97% OF ALL FOREIGN TRADE
WTO FUNCTIONS:
ADMINISTERS WTO TRADE AGREEMENTS
PROVIDES A FORUM FOR TRADE NEGOTIATIONS
ESPECIALLY LIBERALIZATION OF TRADE
HANDLES TRADE DISPUTES
MONITORS NATIONAL TRADE POLICIES
PROVIDES TECHNICAL ASSISTANCE & TRAINING FOR DEVELOPING COUNTRIES
FACILITATES CO-OPERATION WITH OTHER INTERNATIONAL ORGANIZATIONS
WORLD BANK
INTERNATIONAL MONETARY FUND (IMF)
TRADING SYSTEM PROMOTED BY THE WTO BASED ON THE FOLLOWING PRINCIPLES:
NON-DISCRIMINATION
EQUAL TREATMENT FOR ALL MEMBERS
FREE TRADE
LOWERING & ELIMINATION OF TRADE BARRIERS
PREDICTABILITY
ASSURANCE OVER TRADE BARRIERS
PROMOTION OF FAIR COMPETITION
DISCOURAGES DUMPING & EXPORT SUBSIDIES
DEVELOPMENT AND ECONOMIC REFORM SHOULD BE ENCOURAGED
FLEXIBILITY FOR DEVELOPING COUNTRIES
WHAT ARE THREE MAIN BENEFITS THAT
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GAINS AS A RESULT OF INTERNATIONAL TRADE?
2. ECONOMIES OF SCALE IN PRODUCTION
INCREASED MARKET SIZE ALLOWS FIRMS TO DECREASE COSTS OF PRODUCTION = INCREASED EFFICIENCY=LOWER PRICE FOR G/S=INCREASED COMPETITIVENESS=INCREASED MARKET SHARE=INCREASED REVENUE=INCREASED SIZE OF FIRM/CORPORATION(MNC)=INCREASED ECONOMIES OF SCALE
GAINS FROM INTERNATIONAL TRADE

1. SPECIALIZATION
2. ECONOMIES OF SCALE IN PRODUCTION
3. LOWER PRICES
4. GREATER CHOICE OF GOODS & SERVICES
5. DIFFERENCES IN RESOURCES
6. FLOW OF NEW IDEAS & TECHNOLOGY
7. INCREASED COMPETITION
8. SOURCE OF FOREIGN EXCHANGE
9. TRADE AS AN 'ENGINE FOR GROWTH'
10. INTERDEPENDENCE
11. EFFICIENT ALLOCATION OF RESOURCES
11. EFFICIENT ALLOCATION OF RESOURCES
FREE TRADE ALLOWS FOR COUNTRIES THAT ARE BEST AT PRODUCING CERTAIN GOODS & SERVICES TO PRODUCE THEM.
ALLOWS FOR EFFICIENCY IN THE ALLOCATION OF RESOURCES
Instead of offering free trade, rich countries provide foreign aid to poor countries. The European Union’s annual dairy subsidy per cow is $913 yet their aid per African person is only $8. Japan’s annual dairy subsidy per cow is $2,700 and its aid per African person is only $1.47. (???)
SPECIALIZATION...
Countries specialize in producing those goods and services in which they have a comparative advantage. Comparative advantage simply means that some countries can produce certain goods more efficiently (at a lower cost) than others. Be it geography, climate, or the presence of certain key resources (minerals, labor, agrable land, etc.), each of these may carry a potential advantage, making one country relatively better than other countries at producing a particular good.

Relative is the key word here as comparative advantage doesn't imply absolute advantage. Some countries can probably produce all goods better than other countries, but this doesn't mean they have to. They can specialize in what they do best (with respect to all other countries) and leave the production of things they are relatively less good at to other countries and import it from them at a lower cost. .. it's a question of opportunity cost of allocating resources into less productive areas vs the more productive ones.
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