Vocabulary Flash Cards Vocabulary Flash Cards

(1)

Vocabulary Flash Cards Vocabulary Flash Cards



For this unit, each student will develop a set of For this unit, each student will develop a set of vocabulary flash cards.

vocabulary flash cards. You will not use book You will not use book definitions.

definitions. Instead, Instead,



You will come up with 5 terms for each vocabulary You will come up with 5 terms for each vocabulary word and list them on side 1 of flash card

word and list them on side 1 of flash card



You will also create an illustration for each term and You will also create an illustration for each term and list it on side 1 of flash card

list it on side 1 of flash card



You will put vocabulary word on second side of flash You will put vocabulary word on second side of flash card card



Today’s terms are: import, export, specialization, Today’s terms are: import, export, specialization, globalization, interdependence, absolute advantage, globalization, interdependence, absolute advantage, comparative advantage

comparative advantage

(2)

Why Georgia?

 In recent trends, many companies around In recent trends, many companies around the world are looking to relocate to the

the world are looking to relocate to the United States. Why would they pick

United States. Why would they pick Georgia?

Georgia?

(3)

International Economics International Economics

Why Do We Trade?

(4)

Georgia Council on Economic Education Georgia Council on Economic Education w w w . g c e e . o r g

w w w . g c e e . o r g

(5)

Why Georgia:

A Robust Environment for Business A Robust Environment for Business



Georgia’s Key Business Assets: Georgia’s Key Business Assets:



Access to Global Markets Access to Global Markets



First Class Workforce First Class Workforce



Pro-Business Environment Pro-Business Environment



International Business Connections International Business Connections



Excellent Quality of Life Excellent Quality of Life

These assets set us apart.

(6)

Per Capita Income

(7)

Median Household Income

(8)

% of Households Married Couples

(9)

Average Household Size

(10)

Breakdown of Household Income by Breakdown of Household Income by

Adults by Occupational Category

(12)

% of Adults Working Outside of County

(13)

% Adults >25 with Minimum HS Degree

(14)

% Adults >25 with Minimum Bachelors

% Adults >25 with Minimum Bachelors Degree

Degree

(15)

Global Access:

Strategic Location Strategic Location in a Growing Region in a Growing Region

 Growing Southeast RegionGrowing Southeast Region

 GDP from the 12-state region GDP from the 12-state region grew by $991 billion between grew by $991 billion between 2000 and 2009

2000 and 2009

 Population grew by over 9.1 Population grew by over 9.1

million people between 2000-2010 million people between 2000-2010

 Four of the states are in the top 10 Four of the states are in the top 10 fastest growing in the U.S.

fastest growing in the U.S.

(16)

Global Access:

Strategic Location Strategic Location in a Growing Region in a Growing Region

 Georgia: A Growing StateGeorgia: A Growing State

 99^th^th largest state in the U.S. – 9.69 largest state in the U.S. – 9.69 million people in 2010

million people in 2010

 77^th^th fastest growing state; added fastest growing state; added the 4

the 4^th^th most number of people most number of people between 2000 and 2010

between 2000 and 2010

 Population is projected to grow by Population is projected to grow by 46% between 2010 and 2030, 46% between 2010 and 2030, adding an additional 4.6 million adding an additional 4.6 million people to the state

people to the state

(17)

Global Access Global Access : : Air Transit Times Air Transit Times

80% of U.S. market within a 2-hour flight of Atlanta

(18)

Global Access Global Access : : Truck Transit Times Truck Transit Times

By truck, Georgia-based companies

are two days or less from 80% of U.S. markets

(19)

Top 10 Georgia Exports

Top 10 Georgia Exports Top 10 Georgia Imports Top 10 Georgia Imports

Top Products Traded Globally: 2010

Based on dollar value

(20)

Standard Standard

SSEIN1 The student will explain why SSEIN1 The student will explain why

individuals, businesses, and governments individuals, businesses, and governments

trade goods and services.

a. Define and distinguish between absolute a. Define and distinguish between absolute

advantage and comparative advantage.

b. Explain that most trade takes place because b. Explain that most trade takes place because

of comparative advantage in the production of a of comparative advantage in the production of a

good or service.

c. Explain the difference between balance of c. Explain the difference between balance of

trade and balance of payments.

(21)

International Trade International Trade



Specialization – each Specialization – each individual, business, individual, business, or nation focuses on or nation focuses on

specific tasks.

Examples:



Teachers here Teachers here teach specific teach specific

subjects, not all subjects, not all

subjects to a group subjects to a group

of students of students . .



At a restaurant, there At a restaurant, there is a

is a division of labor division of labor among busboys,

among busboys, servers, cooks, servers, cooks, dishwashers, etc.

dishwashers, etc.



The U.S. makes more The U.S. makes more high tech goods and high tech goods and imports things like imports things like clothing.

clothing.

(22)

Other International Trade Terms Other International Trade Terms



Import – Good/service brought into the country Import – Good/service brought into the country



Export – Good/service sent out of the country Export – Good/service sent out of the country



Globalization – The increasing connections Globalization – The increasing connections between the economic systems of different between the economic systems of different

countries countries



Interdependence – Economic systems depend Interdependence – Economic systems depend on and are affected by other economic system.

on and are affected by other economic system.

Examples:



China was affected by US recession because U.S. China was affected by US recession because U.S.

consumers were not buying as much consumers were not buying as much



We are and will be affected by Europe’s debt crisis We are and will be affected by Europe’s debt crisis

(23)

Absolute Advantage Absolute Advantage



Definition: Producing Definition: Producing more with same

more with same

amount of resources amount of resources

or using resources or using resources

more efficiently to more efficiently to produce an item.

produce an item.

This does not mean This does not mean you should produce you should produce this good or service this good or service

for purposes of for purposes of

trade.



Example: If a Example: If a

surgeon can build a surgeon can build a new porch swing in new porch swing in

an hour and it takes a an hour and it takes a

skilled carpenter two skilled carpenter two

hours to build same hours to build same

swing, the surgeon swing, the surgeon

has an

has an absolute absolute advantage.

advantage.

(24)

Production Data – Determining Production Data – Determining

Absolute Advantage Absolute Advantage



To determine To determine

absolute advantage – absolute advantage –

find the nation that find the nation that

makes

makes more. more.



Guatemala makes Guatemala makes more of both items, more of both items,

so they have absolute so they have absolute

advantage.

Chocolate Coffee

U.S. 5

tons 10 tons

Guatemala 20

tons 60

tons

(25)

Comparative Advantage Comparative Advantage



Definition: Producing the Definition: Producing the good/service with the

good/service with the lower opportunity cost lower opportunity cost

than another good (that than another good (that

is, the producing the good is, the producing the good

you are more efficient at you are more efficient at

producing given two producing given two

goods).

goods). Trade should Trade should be based on this

be based on this principle.

principle.



Example: If the surgeon Example: If the surgeon who can make a swing in who can make a swing in

an hour could also an hour could also

perform a surgery in that perform a surgery in that hour, he should perform hour, he should perform

surgery and hire the surgery and hire the

skilled carpenter to make skilled carpenter to make

the porch swing.

Surgeon has

Surgeon has comparative comparative advantage

advantage in performing in performing surgery.

surgery.

(26)

Production Data – Determining Production Data – Determining

Comparative Advantage Comparative Advantage

 To determine comparative To determine comparative advantage, find the product advantage, find the product

that each country/person gives that each country/person gives

up least to make up least to make

 To make 1 ton of chocolate, To make 1 ton of chocolate, US must give up 2 tons of US must give up 2 tons of

coffee coffee

 To make 1 ton of chocolate To make 1 ton of chocolate Guatemala must give up 3 Guatemala must give up 3

tons of coffee tons of coffee

 So US has comparative So US has comparative

advantage in chocolate and advantage in chocolate and Guatemala has comparative Guatemala has comparative

advantage in coffee.

Chocolate Coffee

U.S. 5

tons 10 tons

Guatemala 20

tons 60

tons

(27)

Who Should Do What?

Lauren owns a bakery. She is very good at what she does.

In one hour she can decorate 5 cakes or make 20 pies.

Her business is growing and she needs to hire someone to Her business is growing and she needs to hire someone to help make the cakes and pies. Blake has applied for the help make the cakes and pies. Blake has applied for the job and seems like a reliable individual. In one hour he can job and seems like a reliable individual. In one hour he can decorate 4 cakes or make 8 pies. Lauren plans to hire

decorate 4 cakes or make 8 pies. Lauren plans to hire

Blake. Since Lauren can decorate more cakes in one hour Blake. Since Lauren can decorate more cakes in one hour and make more pies in an hour than Blake, she has a

and make more pies in an hour than Blake, she has a

dilemma. Should she have Blake decorate cakes or make dilemma. Should she have Blake decorate cakes or make pies?

pies?

To answer this question, Lauren should determine who has To answer this question, Lauren should determine who has the lower opportunity cost. Help Lauren figure that out by the lower opportunity cost. Help Lauren figure that out by completing A-I below and writing a brief summary for J on completing A-I below and writing a brief summary for J on your worksheet.

your worksheet.

(28)

Who Should Do What?

Lauren and Blake Lauren and Blake

A.A. The opportunity cost of decorating 5 cakes for Lauren is The opportunity cost of decorating 5 cakes for Lauren is 20 pies. 20 pies.

The opportunity cost for Lauren of decorating 1 cake is

The opportunity cost for Lauren of decorating 1 cake is 4 pies.4 pies.

B.B. The opportunity cost of decorating 4 cakes for Blake is The opportunity cost of decorating 4 cakes for Blake is 8 8 pies. The pies. The opportunity cost for Blake of decorating 1 cake is

opportunity cost for Blake of decorating 1 cake is 2 pies.2 pies.

C.C. The opportunity cost of making 20 pies for Lauren is The opportunity cost of making 20 pies for Lauren is 5 cakes. The 5 cakes. The opportunity cost of making 1 pie for Lauren is

opportunity cost of making 1 pie for Lauren is ¼ cakes.¼ cakes.

D.D. The opportunity cost of making 8 pies for Blake is The opportunity cost of making 8 pies for Blake is 4 4 cakes. The cakes. The opportunity cost of making 1 pie for Blake is

opportunity cost of making 1 pie for Blake is ½ cakes.½ cakes.

E.E. Who has the absolute advantage for decorating cakes? Who has the absolute advantage for decorating cakes? LaurenLauren

F.F. Who has the absolute advantage for making pies? Who has the absolute advantage for making pies? LaurenLauren

G.G. Who has the lower opportunity cost for decorating cakes? Who has the lower opportunity cost for decorating cakes? BlakeBlake

H.H. Who has the lower opportunity cost for making pies? Who has the lower opportunity cost for making pies? LaurenLauren

I.I. Who should decorate cakes? Who should decorate cakes? Blake Blake Make pies? Make pies? LaurenLauren

(29)

Balance of Trade Balance of Trade

 Same as Net Exports Same as Net Exports



Exports – Imports Exports – Imports



Trade Deficit = More imports than exports Trade Deficit = More imports than exports



Trade Surplus = More exports than imports Trade Surplus = More exports than imports

(30)

Balance of Payments Balance of Payments

 Measures all the payments between the Measures all the payments between the individuals and businesses of two

individuals and businesses of two

countries (in other words, all the money countries (in other words, all the money

flowing into a country – all money flowing flowing into a country – all money flowing

out of the country out of the country

 Credits = Money flowing into country Credits = Money flowing into country

 Debits = Money flowing out of country Debits = Money flowing out of country

(31)

Balance of Payments Accounts Balance of Payments Accounts

 Current Account Current Account



Balance of Trade (Both goods and services) Balance of Trade (Both goods and services)



Profit Profit earned on investments earned on investments

(stocks/bonds/real estate) abroad (stocks/bonds/real estate) abroad



Money sent to/from individuals as income, Money sent to/from individuals as income, payments from relatives, etc.

payments from relatives, etc.

 Financial Capital Account Financial Capital Account



Money from Money from buying and selling buying and selling of of

investments (stocks/bonds/real estate) abroad

(32)

Balance of Payments Examples Balance of Payments Examples



Current or Capital Account Current or Capital Account



An American company sells $1 million worth of food An American company sells $1 million worth of food to a French firm

to a French firm



A US bank pays interest to Chinese depositors A US bank pays interest to Chinese depositors



An American buys a restaurant in Germany An American buys a restaurant in Germany



A Chinese citizen earns a profit on his stock in an A Chinese citizen earns a profit on his stock in an American company

American company



An American buys stock in a German company An American buys stock in a German company



Would these transactions be credits or debit in Would these transactions be credits or debit in the US balance of payments?

the US balance of payments?

(33)

Vocabulary Flash Cards Vocabulary Flash Cards



For this unit, each student will develop a set of For this unit, each student will develop a set of vocabulary flash cards.

vocabulary flash cards. You will not use book You will not use book definitions.

definitions. Instead, Instead,



You will come up with 5 terms for each vocabulary You will come up with 5 terms for each vocabulary word and list them on side 1 of flash card

word and list them on side 1 of flash card



You will also create an illustration for each term and You will also create an illustration for each term and list it on side 1 of flash card

list it on side 1 of flash card



You will put vocabulary word on second side of flash You will put vocabulary word on second side of flash card card



Today’s terms are: import, export, specialization, Today’s terms are: import, export, specialization, globalization, interdependence, absolute advantage, globalization, interdependence, absolute advantage, comparative advantage

comparative advantage

(34)

Absolute v. Comparative Absolute v. Comparative



An absolute advantage in trade occurs when a nation An absolute advantage in trade occurs when a nation can produce more of a product using all available

can produce more of a product using all available resources

resources



A comparative advantage occurs when the opportunity A comparative advantage occurs when the opportunity

cost is less by comparison for one country over another

(35)

Vocabulary Flash Cards Vocabulary Flash Cards



For this unit, each student will develop a set of For this unit, each student will develop a set of vocabulary flash cards.

vocabulary flash cards. You will not use book You will not use book definitions.

definitions. Instead, Instead,



You will come up with 5 terms for each vocabulary word You will come up with 5 terms for each vocabulary word and list them on side 1 of flash card

and list them on side 1 of flash card



You will also create an illustration for each term and list it You will also create an illustration for each term and list it on side 1 of flash card

on side 1 of flash card



You will put vocabulary word on second side of flash card You will put vocabulary word on second side of flash card



Today’s terms are: WTO, EU, NAFTA, ,ASEAN, trade Today’s terms are: WTO, EU, NAFTA, ,ASEAN, trade barrier, import quota, tariff or customs duty, and

barrier, import quota, tariff or customs duty, and protectionism.

protectionism.

 Old terms: import, export, specialization, globalization, Old terms: import, export, specialization, globalization,

interdependence, absolute advantage, comparative advantage interdependence, absolute advantage, comparative advantage

(36)

MP3 Players or Laptops?

Country A

A A B B C C D D E E F F G G

Number of Number of MP3 MP3

Players Players Number of Number of Laptops Laptops

(37)

MP3 Players or Laptops?

Country B

A A B B C C D D E E F F G G

Players Players Number of Number of Laptops Laptops

(38)

Country A

A A B B C C D D E E F F G G

Players Players

48 48 40 40 32 32 24 24 16 16 8 8 0 0

Number of Number of Laptops

Laptops

0 0 4 4 8 8 12 12 16 16 20 20 24 24

Country B

A A B B C C D D E E F F G G

Players Players

6 6 5 5 4 4 3 3 2 2 1 1 0 0

Number of Number of Laptops

Laptops

0 0 2 2 4 4 6 6 8 8 10 10 12 12

(39)

Trade Organizations and Agreements Trade Organizations and Agreements



Organizations that promote free trade and work Organizations that promote free trade and work to eliminate trade barriers among members.

to eliminate trade barriers among members.



Worldwide Worldwide

 WTO (Replaced GATT) – World Trade OrganizationWTO (Replaced GATT) – World Trade Organization



Regional Regional

 EU – European UnionEU – European Union

 NAFTA – North American Free Trade Agreement (US, NAFTA – North American Free Trade Agreement (US, Canada, Mexico)

Canada, Mexico)

 CAFTA – Central American Free Trade AgreementCAFTA – Central American Free Trade Agreement

 ASEAN – Association of Southeast Asian NationsASEAN – Association of Southeast Asian Nations

(40)

Trade Barriers Trade Barriers



Anything that limits, prohibits, or discourages trade Anything that limits, prohibits, or discourages trade

 Tariff or Customs Duty – tax on importTariff or Customs Duty – tax on import

 Import Quota – restriction on quantity or dollar amount importedImport Quota – restriction on quantity or dollar amount imported

 Voluntary Export Restraint – restriction on quantity or dollar Voluntary Export Restraint – restriction on quantity or dollar amount exported

amount exported

 Subsidy- payment made to domestic producers (lowers market Subsidy- payment made to domestic producers (lowers market price of good disadvantaging international producers)

price of good disadvantaging international producers)

 License – requirement for license can restrict access of License – requirement for license can restrict access of international firms

international firms

 Regulations (such as health and safety) – domestic regulations Regulations (such as health and safety) – domestic regulations may prevent imports from some countries (example: US wheat may prevent imports from some countries (example: US wheat cannot be sent to EU because they do not allow GMOs)

cannot be sent to EU because they do not allow GMOs)

 Embargo- a complete restriction on trade with another country; Embargo- a complete restriction on trade with another country;

usually the result of political conflict between two or more countries usually the result of political conflict between two or more countries

(41)

Arguments Against Free Trade Arguments Against Free Trade



Protectionism – Using trade barriers to protect a Protectionism – Using trade barriers to protect a country against competition. Why?

country against competition. Why?



Protect Jobs Protect Jobs



Protect Infant Industries Protect Infant Industries



Safeguard National Security Safeguard National Security



“ “ Fair trade” arguments – Trade should occur Fair trade” arguments – Trade should occur when working conditions are acceptable and when working conditions are acceptable and

environmental concerns are addressed

(42)

Arguments For Free Trade Arguments For Free Trade

 Economists generally support free trade Economists generally support free trade because

because



It increases quantity and quality of goods and It increases quantity and quality of goods and services available to everyone

services available to everyone



It increases standard of living of all countries It increases standard of living of all countries



Allows you to work outside your “PPC” Allows you to work outside your “PPC”

(43)

Vocabulary Flash Cards Vocabulary Flash Cards



For this unit, each student will develop a set of For this unit, each student will develop a set of vocabulary flash cards.

vocabulary flash cards. You will not use book You will not use book definitions.

definitions. Instead, Instead,



You will come up with 5 terms for each vocabulary word You will come up with 5 terms for each vocabulary word and list them on side 1 of flash card

and list them on side 1 of flash card



You will also create an illustration for each term and list it You will also create an illustration for each term and list it on side 1 of flash card

on side 1 of flash card



You will put vocabulary word on second side of flash card You will put vocabulary word on second side of flash card



Today’s terms are: WTO, EU, NAFTA, ,ASEAN, trade Today’s terms are: WTO, EU, NAFTA, ,ASEAN, trade barrier, import quota, tariff or customs duty, and

barrier, import quota, tariff or customs duty, and protectionism.

protectionism.

 Old terms: import, export, specialization, globalization, Old terms: import, export, specialization, globalization,

interdependence, absolute advantage, comparative advantage interdependence, absolute advantage, comparative advantage

(44)

Choose Your Side Choose Your Side



Create a visual showing 3 reasons why a country Create a visual showing 3 reasons why a country might want to participate in trade

might want to participate in trade and 2 and 2 reasons reasons why it may not want to participate in trade; on the why it may not want to participate in trade; on the

back, use

back, use one one hook (picture or tag line) to express hook (picture or tag line) to express either “for” or “against” trade

either “for” or “against” trade



You may do a comic, poster, political cartoon or poem You may do a comic, poster, political cartoon or poem



You must clearly distinguish/state each of your reasons You must clearly distinguish/state each of your reasons and provide an example

and provide an example



I must be able to clearly see that you have stated I must be able to clearly see that you have stated

whether you are for free trade or against or in between whether you are for free trade or against or in between (fair trade?)

(fair trade?)

(45)

Currency Exchange Terms

 Exchange Rate = Value of one currency in terms of another

 Appreciation = Currency has gained value relative to other currency

 Depreciation = Currency has lost value

relative to other currency

(46)

Currency Exchange Systems



Fixed Exchange Rate System – Value of currency in relation to another is set by

government (not common today but China still pegs value of its currency)



Flexible Exchange Rate System – Value of

currency in relation to another is set by market (supply and demand)



Most major currencies have a some version of

flexible exchange rate system (but usually have

some form of government intervention as well)

including US

(47)

Currency Exchange = Who Wins and Loses



If the US Dollar appreciates or gets stronger:

 US Exporters Lose (US goods cost more to foreigners)

 US Importers Win (Foreign goods are cheaper for Americans)

 Foreigners traveling to US lose (Foreigners expenses are higher)

 US travelers to other countries win (the US dollar will buy more there)



If the US Dollar depreciates or gets weaker:

 US Exporters Win

 US Importers Lose

 Foreigners traveling to US win

 US travelers to other countries lose

(48)

How Many Cans of OJ Do You How Many Cans of OJ Do You

Need?



If a pitcher of orange If a pitcher of orange juice requires one can juice requires one can

of OJ and three cans of OJ and three cans

of water, how many of water, how many

cans of water would it cans of water would it

take to make 3 take to make 3

pitchers?



3/1 (cans of water to 3/1 (cans of water to OJ for 1 pitcher)

OJ for 1 pitcher)



n/3 (for three pitchers) n/3 (for three pitchers)



33=9; 1n=n; n=9 33=9; 1n=n; n=9 cans of water

cans of water

How many cans to

make 27 pitchers?

(49)

Exchange Rates Exchange Rates



Exchange Rates work on this same ratio basis: Exchange Rates work on this same ratio basis:

$1= €0.94 (Euros)

$1= €0.94 (Euros) To convert prices use To convert prices use

Price in €÷ €0.94 = Price in $ ÷ $1 Price in €÷ €0.94 = Price in $ ÷ $1

If the price of a computer in the US is $1200, what If the price of a computer in the US is $1200, what

should the price be in London?

N ÷ €0.94 = $1200 ÷ $1 N ÷ €0.94 = $1200 ÷ $1 Cross Multiply: $1N = 1,128 Cross Multiply: $1N = 1,128 The computer should cost €1,128 The computer should cost €1,128

Or 792 BPS

(50)

Exchange Rate Exchange Rate



A computer costs $1200 in the United States and €1000 A computer costs $1200 in the United States and €1000 in France with an exchange rate of $1=€.80; where

in France with an exchange rate of $1=€.80; where should you buy the computer?

should you buy the computer?



An Affliction T-Shirt costs $25 in New York City and An Affliction T-Shirt costs $25 in New York City and

1,100 in Moscow with an exchange rate of $1= 46.93;

₽ 1,100 in Moscow with an exchange rate of $1= 46.93; ₽

₽ ₽

where should you buy the T-Shirt?



A diamond ring costs ₱40,000 in Mexico and ¥15,300 in A diamond ring costs ₱40,000 in Mexico and ¥15,300 in China with an exchange rate of ₱1=¥.45

China with an exchange rate of ₱1=¥.45

(51)

Exchange Rate Exchange Rate



A computer costs $1200 in the United States and €1000 A computer costs $1200 in the United States and €1000 in France with an exchange rate of $1=€.80; where

in France with an exchange rate of $1=€.80; where should you buy the computer?

should you buy the computer?

 The United StatesThe United States



An Affliction T-Shirt costs $25 in New York City and An Affliction T-Shirt costs $25 in New York City and

1,100 in Moscow with an exchange rate of $1= 46.93;

₽ 1,100 in Moscow with an exchange rate of $1= 46.93; ₽

₽ ₽

where should you buy the T-Shirt?

 In RussiaIn Russia



A diamond ring costs ₱40,000 in Mexico and ¥15,300 in A diamond ring costs ₱40,000 in Mexico and ¥15,300 in China with an exchange rate of ₱1=¥.45

China with an exchange rate of ₱1=¥.45

 In ChinaIn China

(52)

(53)

Vocabulary Flash Cards Vocabulary Flash Cards



For this unit, each student will develop a set of For this unit, each student will develop a set of vocabulary flash cards.

vocabulary flash cards. You will not use book definitions. You will not use book definitions.

Instead, Instead,

 You will come up with 5 terms for each vocabulary word and list You will come up with 5 terms for each vocabulary word and list them on side 1 of flash card

them on side 1 of flash card

 You will also create an illustration for each term and list it on You will also create an illustration for each term and list it on side 1 of flash card

side 1 of flash card

 You will put vocabulary word on second side of flash cardYou will put vocabulary word on second side of flash card

 Terms are: Exchange Rate, Appreciation, Depreciation, Fixed Terms are: Exchange Rate, Appreciation, Depreciation, Fixed Exchange Rate System, Flexible Exchange Rate System,

Exchange Rate System, Flexible Exchange Rate System,

import, export, specialization, globalization, interdependence, import, export, specialization, globalization, interdependence,

absolute advantage, comparative advantage, WTO, EU, absolute advantage, comparative advantage, WTO, EU,

NAFTA, ,ASEAN, trade barrier, import quota, tariff or customs NAFTA, ,ASEAN, trade barrier, import quota, tariff or customs

duty, and protectionism.

(54)

Absolute and Comparative Absolute and Comparative

Advantage in Action Advantage in Action

 Who has absolute advantage in paper Who has absolute advantage in paper airplane production?

airplane production?

 Who has comparative advantage in paper Who has comparative advantage in paper football production?

football production?

 Who has comparative advantage in paper Who has comparative advantage in paper airplane production?

airplane production?

 Who has comparative advantage in paper Who has comparative advantage in paper football production?

football production?

(55)

Choose Your Country of Origin Choose Your Country of Origin



You are a member of a travelling consultant You are a member of a travelling consultant team assigned with evaluating locations for a team assigned with evaluating locations for a

new car production facility new car production facility



Compare and contrast two of the countries and Compare and contrast two of the countries and decide as a team which country would best

decide as a team which country would best serve the car companies interest

serve the car companies interest



Remember, first and foremost, companies are Remember, first and foremost, companies are concerned with costs of production; they need concerned with costs of production; they need

cheap, easy access to resources including labor, cheap, easy access to resources including labor,

steel, aluminum, rubber, robotic equipment, etc.

(56)

TOD TOD

1.1.

Which of the following expresses the difference between Which of the following expresses the difference between a comparative advantage and an absolute advantage?

a comparative advantage and an absolute advantage?

A.A. an absolute advantage exits only in one country while a an absolute advantage exits only in one country while a

comparative advantage compares the activities of two countries comparative advantage compares the activities of two countries

B.B. An absolute advantage is when a country produces more with the An absolute advantage is when a country produces more with the same resources as another; a comparative advantage is when a same resources as another; a comparative advantage is when a country produces the same product at a lower opportunity cost country produces the same product at a lower opportunity cost than another

than another

C.C. There is no difference between the absolute and comparative There is no difference between the absolute and comparative advantage

advantage

D.D. I don’t know the difference between absolute and comparative I don’t know the difference between absolute and comparative advantage

advantage

(57)

TOD TOD

2. 2. Country A and B will not trade if Country A and B will not trade if

A.A.

They do not like each other politically They do not like each other politically

B.B.

Country A has an absolute advantage in shoes Country A has an absolute advantage in shoes and tennis rackets, while country B has no

and tennis rackets, while country B has no absolute advantage

absolute advantage

C.C.

Country A and B produce tennis rackets at the Country A and B produce tennis rackets at the same opportunity cost

same opportunity cost

D.D.

Country B has a comparative advantage in Country B has a comparative advantage in tennis rackets while Country A has a

tennis rackets while Country A has a comparative advantage in shoes

comparative advantage in shoes

(58)

TOD TOD

3.3.

Bob and Tom work at Rawlings. Bob can make 50 Bob and Tom work at Rawlings. Bob can make 50 softballs in one day or 100 baseballs. Tom can make softballs in one day or 100 baseballs. Tom can make 25 softballs in one day or 100 baseballs. Which of the 25 softballs in one day or 100 baseballs. Which of the following is true

following is true

A.A. Tom has an absolute advantage in softball and baseball Tom has an absolute advantage in softball and baseball production

production

B.B. Bob has an absolute advantage in softball and baseball Bob has an absolute advantage in softball and baseball production

production

C.C. Bob has a comparative advantage in softball production while Bob has a comparative advantage in softball production while Tom has a comparative advantage in baseball production

Tom has a comparative advantage in baseball production

D.D. Bob has a comparative advantage in baseball production while Bob has a comparative advantage in baseball production while Tom has a comparative advantage in softball production

Tom has a comparative advantage in softball production

(59)

TOD TOD

4. 4. Which of the following is true about the Which of the following is true about the current and financial accounts in the

current and financial accounts in the balance of payments account?

balance of payments account?

A.A.

The equal zero when added together The equal zero when added together

B.B.

They must equal each other They must equal each other

C.C.

They equal 1 when added together They equal 1 when added together

D.D.

They equal the balance of trade when added They equal the balance of trade when added together

together

(60)

TOD TOD

5. If the price of a suit is $500 in Atlanta and 5. If the price of a suit is $500 in Atlanta and

375£ in London, where should you buy the 375£ in London, where should you buy the

suit assuming an exchange rate of suit assuming an exchange rate of

$1=0.75£?

a. In Atlanta a. In Atlanta b. In London b. In London

c. In neither country, the suit is too c. In neither country, the suit is too expensive

expensive

d. In either country

(61)

TOD TOD

 After completing the notes draw a PPC for After completing the notes draw a PPC for Country A and B

Country A and B



Country A is operating at Point C Country A is operating at Point C



Country B is operating at Point E Country B is operating at Point E



If Country B needs 6 Laptops to fulfill If Country B needs 6 Laptops to fulfill

domestic demand, how many MP3 players will domestic demand, how many MP3 players will

they want in return from Country A if they they want in return from Country A if they

trade the extra two?

