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Chapter 15 - International Trade and Policy Insights | Microeconomics | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

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The principle of comparative advantage tells us that we can all enjoy more goods and services when each country produces according to its comparative advantage, and then trades with other countries. Tài liệu được sưu tầm và soạn thảo dưới dạng file PDF với mục đích hỗ trợ học tập và tham khảo. Nội dung tài liệu được trình bày rõ ràng, dễ tiếp cận, phù hợp cho việc ôn tập và củng cố kiến thức trong quá trình học đại học. Đây sẽ là nguồn tư liệu hữu ích giúp các bạn sinh viên chuẩn bị tốt hơn cho các buổi học, đồng thời mở rộng thêm hiểu biết về môn học. Hy vọng tài liệu này sẽ mang lại nhiều giá trị và hỗ trợ các bạn trong hành trình học tập. Mời bạn đọc cùng tham khảo!

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International Trade and Trade Policy
©2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or distribution without the prior written consent of McGraw Hill.
Chapter 15
Learning Objectives
1. Explain and apply the concept of comparative advantage
as a basis for trade.
2. Contrast the production and consumption opportunities in
a closed economy with that of an open economy using
3. Explain how the price of a tradable good is set in a
closed versus an open economy, how the quantities of
imports or exports are determined, and discuss who are
the winners and losers from trade.
4. Illustrate why trade is often politically controversial even
though it promises to increase total income.
©2022 McGraw Hill.
2
Comparative Advantage as a Basis for
Trade
• The principle of comparative advantage tells us that
we can all enjoy more goods and services when each
country produces according to its comparative
advantage, and then trades with other countries.
©2022 McGraw Hill.
3
Production and Consumption Possibilities and the
Benefits of Trade
• Closed Economy
– An economy that does not trade with the rest of the world
• Open Economy
– An economy that trades with other countries
©2022 McGraw Hill.
4
Production and Consumption Possibilities and the
Benefits of Trade
• Example
– Two good economy (Costa Rica) -- computers and coffee
– Two workers who work 50 weeks/year
• Carlos
– Can produce 100 pounds/week or 1 computer
• Maria
– Can produce 100 pounds/week or 2 computers
©2022 McGraw Hill.
5
Production and Consumption Possibilities and the
Benefits of Trade
• Example
– Slope of PPC (Maria)
– Slope of PPC (Carlos)
©2022 McGraw Hill.
6
Maria′s
OC
comput ers
=
−100 lbs coffee/wk
2
computers/wk
= −50 lbs. of coffee/computer
Carl os′s
OC
computers
=
−100 lbs co ffee/ wk
1
computers /wk
= −100 lbs. of coffee/co mpute r
Production Possibilities
Curve for a Two-Worker Economy
©2022 McGraw Hill.
7
10,000
100
B
150
5,000
Slope
AC
= Maria’s OC
computers
=
- 50 pounds coffee/computer
C
A
Slope
CB
= Carlos’s OC
computers
=
- 100 pounds coffee/computer
Computers (number/year)
Coffee (pounds/year)
B
C
A
D
Maria produces computers
Maria and Pedro
produce computers
All three workers
produce computers
Production Possibilities
Curve for a Three-Worker Economy
©2022 McGraw Hill.
8
Computers (number/year)
Coffee (pounds/year)
Production Possibilities
Curve for a Many-Worker Economy
©2022 McGraw Hill.
9
Computers (number/year)
Coffee (pounds/year)
B
C
A
D
Observations
•The OC of producing
an additional unit =
the slope of the line
that touches the point
•OC will increase as
output of on good
increases
Production and Consumption
Possibilities and the Benefits of Trade
• A country’s PPC shows the quantities of different
goods that its economy can produce.
• Consumption Possibilities
– The combinations of goods and services that a country’s
citizens might feasibly consume
©2022 McGraw Hill.
10
Production and Consumption
Possibilities and the Benefits of Trade
• In a closed economy:
– Society’s production possibilities = consumption
possibilities.
– If a country is self-sufficient and does not trade, it is called
autarky.
• In an open economy:
– The society’s consumption possibilities are typically greater
than its production possibilities.
©2022 McGraw Hill.
11
Costa Rica’s Consumption
Possibilities with Trade
©2022 McGraw Hill.
12
Computers (number/year)
Coffee (pounds/year)
100
B
150
10,000
C
A
5,000
Production possibilities
Slope = -50 pounds
coffee/computer
Production possibilities
Slope = -100 pounds
coffee/computer
Without Trade
•Costa Rica’s consumption
possibilities = ACB
•Assume production is at C
•The OC of 50 lbs. coffee = 1
computer
•The OC of 1 computer = 100 lbs.
coffee
Computers (number/year)
Coffee (pounds/year)
13,000
100
C
G
F
5,000
162.5
Consumption possibilities
with trade
Slope = -80 lbs.
coffee/computer
With Trade
• World market: 80 lbs. coffee for 1
computer
• Trade 100 comp. for 8,000 lbs. coffee +
5,000 lbs. from Carlos = 13,000 lbs.
• Trade 5,000 lbs. of coffee for 62.5
computers + 100 computers from Maria
= 162.5 computers
• Consumption Possibilities = FCG
Costa Rica’s Consumption Possibilities
with Trade
©2022 McGraw Hill.
13
Costa Rica’s Consumption
Possibilities with Trade
©2022 McGraw Hill.
14
Computers (number/year)
Coffee (pounds/year)
13,000
100
B
150
10,000
C
A
G
F
5,000
162.5
Consumption possibilities with trade
Slope = -80 pounds coffee/computer
Production possibilities
Slope = -50 pounds coffee/computer
Production possibilities
Slope = -100 pounds coffee/computer
Consumption Possibilities
Curve for a Many-Worker Economy
©2022 McGraw Hill.
15
Computers (number/year)
Coffee (pounds/year)
B
C
A
G
F
Consumption
possibilities
Production
possibilities
•Slope of FG = relative prices of
coffee & computers on the
world market
•Maximum consumption by
producing at C (slope of PPC =
FG) and trading for the desired
combination on FG
The Market for
Computers in Costa Rica
©2022 McGraw Hill.
16
Quantity of computers
Price of computers
p
E
q
Domestic
supply
Domestic
demand
Closed economy
equilibrium
q q
S D
World
price
Imports
A Supply and Demand
Perspective on Trade
• If the price of a good or service in a closed economy is
greater than the world price, and that economy opens
itself to trade, the economy will tend to become a net
importer of that good or service.
©2022 McGraw Hill.
17
The Market for Coffee in
Costa Rica
©2022 McGraw Hill.
18
Quantity of coffee
Price of coffee
p
E
q
Domestic
supply
Domestic
demand
Closed economy
equilibrium
q
S
q
D
World
price
Exports
A Supply and Demand
Perspective on Trade
• If the price of a good or service in a closed economy is
lower than the world price, and that economy opens
itself for trade, the economy will tend to become a net
exporter of that good or service.
©2022 McGraw Hill.
19
A Supply and Demand
Perspective on Trade
• Observations of the Mutually Beneficial Gains
from Trade
– Countries will profit by exporting the goods and services for
which they have a comparative advantage.
– The revenue from the exports are used to import goods and
services for which they do not have a comparative
advantage.
©2022 McGraw Hill.
20

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Preview text:

Chapter 15
International Trade and Trade Policy
©2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or distribution without the prior written consent of McGraw Hill. Learning Objectives
1. Explain and apply the concept of comparative advantage as a basis for trade.
2. Contrast the production and consumption opportunities in
a closed economy with that of an open economy using
the production possibilities curve.
3. Explain how the price of a tradable good is set in a
closed versus an open economy, how the quantities of
imports or exports are determined, and discuss who are
the winners and losers from trade.
4. Illustrate why trade is often politically controversial even
though it promises to increase total income. 2 ©2022 McGraw Hill.
Comparative Advantage as a Basis for Trade
• The principle of comparative advantage tells us that
we can all enjoy more goods and services when each
country produces according to its comparative
advantage, and then trades with other countries. 3 ©2022 McGraw Hill.
Production and Consumption Possibilities and the Benefits of Trade • Closed Economy
– An economy that does not trade with the rest of the world • Open Economy
– An economy that trades with other countries 4 ©2022 McGraw Hill.
Production and Consumption Possibilities and the Benefits of Trade • Example
– Two good economy (Costa Rica) -- computers and coffee
– Two workers who work 50 weeks/year • Carlos
– Can produce 100 pounds/week or 1 computer • Maria
– Can produce 100 pounds/week or 2 computers 5 ©2022 McGraw Hill.
Production and Consumption Possibilities and the Benefits of Trade • Example – Slope of PPC (Maria) −100 lbs coffee/wk Maria′s OCcomputers =
= −50 lbs. of coffee/computer 2 computers/wk – Slope of PPC (Carlos) −100 lbs coffee/wk Carlos′s OCcomputers =
= −100 lbs. of coffee/computer 1 computers/wk 6 ©2022 McGraw Hill.
Production Possibilities
Curve for a Two-Worker Economy A 10,000 r) Slope = Maria’s OC = AC computers a e - 50 pounds coffee/computer s/y d n u o C 5,000 (p Slope = Carlos’s OC = CB computers e - 100 pounds coffee/computer ffe o C B 100 150 Computers (number/year) 7 ©2022 McGraw Hill.
Production Possibilities
Curve for a Three-Worker Economy Maria produces computers A C r) a e Maria and Pedro s/y produce computers d n D u o (p e All three workers ffe o produce computers C B Computers (number/year) 8 ©2022 McGraw Hill.
Production Possibilities
Curve for a Many-Worker Economy A C Observations •The OC of producing r) a an additional unit = e the slope of the line s/y d that touches the point n u o • OC will increase as (p output of on good e D increases ffe o C B Computers (number/year) 9 ©2022 McGraw Hill.
Production and Consumption
Possibilities and the Benefits of Trade
• A country’s PPC shows the quantities of different
goods that its economy can produce.
• Consumption Possibilities
– The combinations of goods and services that a country’s
citizens might feasibly consume 10 ©2022 McGraw Hill.
Production and Consumption
Possibilities and the Benefits of Trade • In a closed economy:
– Society’s production possibilities = consumption possibilities.
– If a country is self-sufficient and does not trade, it is called autarky. • In an open economy:
– The society’s consumption possibilities are typically greater
than its production possibilities. 11 ©2022 McGraw Hill.
Costa Rica’s Consumption
Possibilities with Trade Without Trade •Costa Rica’s consumption Production possibilities r) a A possibilities = ACB e Slope = -50 pounds 10,000
•Assume production is at C s/y coffee/computer d
•The OC of 50 lbs. coffee = 1 n u computer o (p
•The OC of 1 computer = 100 lbs. e coffee C ffe o 5,000 C Production possibilities Slope = -100 pounds coffee/computer B 100 150 Computers (number/year) 12 ©2022 McGraw Hill.
Costa Rica’s Consumption Possibilities with Trade F With Trade 13,000
• World market: 80 lbs. coffee for 1 computer r) a
• Trade 100 comp. for 8,000 lbs. coffee + e
5,000 lbs. from Carlos = 13,000 lbs. s/y d
• Trade 5,000 lbs. of coffee for 62.5 n u
computers + 100 computers from Maria o = 162.5 computers (p e C
• Consumption Possibilities = FCG 5,000 ffe o C Consumption possibilities with trade Slope = -80 lbs. coffee/computer G 100 162.5 Computers (number/year) 13 ©2022 McGraw Hill.
Costa Rica’s Consumption
Possibilities with Trade F
Consumption possibilities with trade 13,000
Slope = -80 pounds coffee/computer r) A a 10,000 Production possibilities e
Slope = -50 pounds coffee/computer s/y d n u o (p e C Production possibilities 5,000 ffe
Slope = -100 pounds coffee/computer o C B G 100 150 162.5 Computers (number/year) 14 ©2022 McGraw Hill.
Consumption Possibilities
Curve for a Many-Worker Economy F Consumption
• Slope of FG = relative prices of possibilities coffee & computers on the A r) world market a e • Maximum consumption by s/y
producing at C (slope of PPC = d n
FG) and trading for the desired u C o combination on FG (p e ffe o C Production possibilities B G Computers (number/year) 15 ©2022 McGraw Hill. The Market for Computers in Costa Rica Closed economy Domestic equilibrium supply rs te E u p p m World f co o price Imports rice P Domestic demand qS q qD Quantity of computers 16 ©2022 McGraw Hill. A Supply and Demand Perspective on Trade
• If the price of a good or service in a closed economy is
greater than the world price, and that economy opens
itself to trade, the economy will tend to become a net
importer of that good or service. 17 ©2022 McGraw Hill.
The Market for Coffee in Costa Rica Domestic Exports supply World price E e ffe p f co Closed economy o equilibrium rice P Domestic demand qD q qS Quantity of coffee 18 ©2022 McGraw Hill. A Supply and Demand Perspective on Trade
• If the price of a good or service in a closed economy is
lower than the world price, and that economy opens
itself for trade, the economy will tend to become a net
exporter of that good or service. 19 ©2022 McGraw Hill. A Supply and Demand Perspective on Trade
• Observations of the Mutually Beneficial Gains from Trade
– Countries will profit by exporting the goods and services for
which they have a comparative advantage.
– The revenue from the exports are used to import goods and
services for which they do not have a comparative advantage. 20 ©2022 McGraw Hill.

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