Macro Chapter 5 Presentation 1 Trade surplus, trade deficit, GDP, Absolute/Comparative advantage

Macro Chapter 5

Presentation 1

Trade surplus, trade deficit, GDP, Absolute/Comparative advantage

United States and World Trade

Volume and PatternPrincipal U.S. Exports & Imports – 2005in Billions of Dollars

ChemicalsConsumer DurablesAgricultural ProductsSemiconductorsComputersGenerating EquipmentAutomobilesAircraftMedicalTelecommunications

PetroleumAutomobilesHousehold AppliancesComputersMetalsClothingConsumer ElectronicsGenerating EquipmentSemiconductorsTelecommunications

Exports Imports

Source: Department of Commerce Data

$68.653.552.947.245.533.230.429.127.625.6

$251.6123.7

97.193.383.879.147.343.137.125.8

Gross Domestic Product (GDP)

• The total market value of all final goods and services produced in a given year

http://rds.yahoo.com/_ylt=A2KJkIU4m6JMJ3IAam2JzbkF;_ylu=X3oDMTBqaTFoaGxvBHBvcwMxNwRzZWMDc3IEdnRpZAM-/SIG=1iq2j3ve2/EXP=1285811384/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dinternational%252Btrade%2526ei%253Dutf-8%2526fr%253Dyfp-t-979%26w=500%26h=417%26imgurl=thepakworld.com%252Fhome%252Fwp-content%252Fuploads%252F2010%252F01%252FInternational_Trade.57131757.jpg%26rurl=http%253A%252F%252Fthepakworld.com%252Fhome%252F%253Fp%253D276%26size=43KB%26name=...%2B%25C2%25BB%2BInternatio...%26p=international%2Btrade%26oid=a56f52d7c3fccb0f365b80174dfb632e%26fr2=%26no=17%26tt=1730000%26sigr=112tul5os%26sigi=12gnu5v0q%26sigb=12o5e1btk

Trade Deficit

• Occurs when imports exceed exports

• **US has a trade deficit in goods

• The US had a $497.9 billion trade deficit in 2010… $1.8 trillion in exports minus $2.3 trillion in imports.

http://rds.yahoo.com/_ylt=A2KJke2WnaJMHy4A1siJzbkF;_ylu=X3oDMTBpZTByOGFiBHBvcwMyBHNlYwNzcgR2dGlkAw--/SIG=1hvukqg8n/EXP=1285811990/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dart%252Bvandelay%252Bindustries%2526rs%253D1%2526fr%253Dyfp-t-979%26w=500%26h=500%26imgurl=shirtoid.com%252Fwp-content%252Fuploads%252F2009%252F06%252Fvandelay-ind.jpg%26rurl=http%253A%252F%252Fshirtoid.com%252F1347%252Fvandelay-industries%252F%26size=21KB%26name=Vandelay%2BIndustr...%26p=art%2Bvandelay%2Bindustries%26oid=3249325a13ec4167901c83831a303565%26fr2=%26no=2%26tt=136%26sigr=11dl03chm%26sigi=11olojinv%26sigb=12o37fdjv

Trade Surplus

• Occurs when exports exceed imports

• ***US has a trade surplus in services such as transportation, legal, medical and financial services

• Trade surplus in services of $526 B in 2010

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US Trade Balance

Trade Data

• **numerically, Canada is the biggest trading partner (16% of total trade)

• US has the biggest trade deficits to China and Mexico… trade surplus with Australia

http://rds.yahoo.com/_ylt=A0S020xEoaJM4j8AnRuJzbkF;_ylu=X3oDMTBpdnJhMHUzBHBvcwMxBHNlYwNzcgR2dGlkAw--/SIG=1ihfupbrp/EXP=1285812932/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dchinese%252Bflag%2526ei%253Dutf-8%2526fr%253Dyfp-t-979%26w=640%26h=511%26imgurl=techbuddha.files.wordpress.com%252F2008%252F11%252Fg228586_chinese-flag-640.jpg%26rurl=http%253A%252F%252Ftechbuddha.wordpress.com%252F2008%252F11%252F20%252Fus-warned-of-china-cyber-spying%252F%26size=42KB%26name=g228586_chinese-...%26p=chinese%2Bflag%26oid=fc0511b3eba42bd59932aed89faa0a90%26fr2=%26no=1%26tt=138000%26sigr=12b6urgd9%26sigi=1231plp1i%26sigb=12hsim6be

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http://rds.yahoo.com/_ylt=A0S020x7oaJM_j8AOPOJzbkF;_ylu=X3oDMTBpdnJhMHUzBHBvcwMxBHNlYwNzcgR2dGlkAw--/SIG=1fp445t8j/EXP=1285812987/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Djapanese%252Bflag%2526ei%253Dutf-8%2526fr%253Dyfp-t-979%26w=640%26h=511%26imgurl=www.japanese-flag.org%252Fjapanese-flag-640.jpg%26rurl=http%253A%252F%252Fwww.japanese-flag.org%252F%26size=35KB%26name=...%2BJapanese%2Bfla...%26p=japanese%2Bflag%26oid=16c8bdabb4dc6b634ae6dbfc3e6ea95e%26fr2=%26no=1%26tt=112000%26sigr=10tbk4tm4%26sigi=11bve5e9b%26sigb=12iouj0j3

Tariffs

• An excise tax on an imported product

• Used to encourage the purchase of domestic goods

http://rds.yahoo.com/_ylt=A0S020lHoqJMi20Anm6JzbkF;_ylu=X3oDMTBqa2ZvcGdtBHBvcwM1NQRzZWMDc3IEdnRpZAM-/SIG=1kndg797o/EXP=1285813191/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dmade%252Bin%252Bamerica%2526b%253D55%2526ni%253D18%2526ei%253Dutf-8%2526xargs%253D0%2526pstart%253D1%2526fr%253Dyfp-t-979%26w=1054%26h=498%26imgurl=mes1.wellborn.com%252Fivault%252Fuploads%252FMade%252520In%252520America%252520Logo%252520RGB.jpg%26rurl=http%253A%252F%252Fwww.wellborn.com%252Findex.php%253Fnav_id%253D125%26size=262KB%26name=Made%2Bin%2BAmerica%26p=made%2Bin%2Bamerica%26oid=a748a3dbdc661e76fd3d8d5d0139b5ef%26fr2=%26no=55%26tt=1810000%26b=55%26ni=18%26sigr=11clplet4%26sigi=1255v4vjg%26sigb=13g4gfj24

http://rds.yahoo.com/_ylt=A0WTb_24HKNMd1sAvteJzbkF;_ylu=X3oDMTBpZTByOGFiBHBvcwMyBHNlYwNzcgR2dGlkAw--/SIG=1h1aqtk2i/EXP=1285844536/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dglobal%252Beconomy%2526ei%253Dutf-8%2526fr%253Dyfp-t-701-s%26w=491%26h=500%26imgurl=www.acus.org%252Ffiles%252Fimages%252Feconomy-cube.preview.jpg%26rurl=http%253A%252F%252Fwww.acus.org%252Fcontent%252Fglobal-economy%26size=37KB%26name=Global%2BEconomy%2B%257C...%26p=global%2Beconomy%26oid=389ec5b9d8569f4a6ef75a0497d02e5e%26fr2=%26no=2%26tt=498000%26sigr=11a5bjf8q%26sigi=11ikaqpne%26sigb=12lvm0hi2

Multinational Corporations

• Firms that have sizable production and distribution activities in other countries

• Ex- Coca-Cola (Atlanta), Nestle (Switzerland)

http://rds.yahoo.com/_ylt=A0S020sio6JMhzUAfWGJzbkF;_ylu=X3oDMTBqa2ZvcGdtBHBvcwM1NQRzZWMDc3IEdnRpZAM-/SIG=1maghc17n/EXP=1285813410/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dcoca%252Bcola%252Binternational%252Blogo%2526b%253D55%2526ni%253D18%2526ei%253Dutf-8%2526xargs%253D0%2526pstart%253D1%2526fr%253Dyfp-t-979%2526fr2%253Dsg-gac%26w=509%26h=520%26imgurl=www.irishfa.com%252Ffs%252Fimg%252Flibrary%252Fcoke-2007-06-06.jpg%26rurl=http%253A%252F%252Fwww.irishfa.com%252Fnews%252Fitem%252F4228%252Fcoco-cola-junior-cup-round-1%26size=70KB%26name=...%2BCoca-Cola%2BFl...%26p=coca%2Bcola%2Binternational%2Blogo%26oid=f2bddc8362b853c1bec7d674249be47c%26fr2=sg-gac%26no=55%26tt=4760%26b=55%26ni=18%26sigr=122esl6v0%26sigi=11iu6eh6p%26sigb=14838lav9

http://rds.yahoo.com/_ylt=A0S020tYo6JMOS0AkCWJzbkF;_ylu=X3oDMTBpdnJhMHUzBHBvcwMxBHNlYwNzcgR2dGlkAw--/SIG=1hmv3cpi7/EXP=1285813464/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dnestle%2526b%253D1%2526ni%253D18%2526ei%253Dutf-8%2526xargs%253D0%2526pstart%253D1%2526fr%253Dyfp-t-979%26w=568%26h=373%26imgurl=www.wisynco.com%252Ffiles%252Fu2%252FNestleLogo.jpg%26rurl=http%253A%252F%252Fwww.wisynco.com%252Fnestle%26size=83KB%26name=Nestle%2B%257C%2BWISYNCO...%26p=nestle%26oid=ea92cc0b141df13a93095275323e1b50%26fr2=%26no=1%26tt=500000%26b=1%26ni=18%26sigr=10t70o3nr%26sigi=117iu39am%26sigb=136hf9vvc

Specialization and Trade

• Specialization and international trade increase the productivity of a nation’s resources and allow for greater total output

http://rds.yahoo.com/_ylt=A0WTefVPfKNMZywAAWuJzbkF;_ylu=X3oDMTBybTh2MjVvBHBvcwMxNzcEc2VjA3NyBHZ0aWQDSTEyNl83Ng--/SIG=1knkeaib5/EXP=1285869007/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dbilly%252Bmadison%2526b%253D161%2526ni%253D20%2526ei%253Dutf-8%2526xargs%253D0%2526pstart%253D1%2526fr%253Dyfp-t-963%26w=350%26h=300%26imgurl=www.yourmovies.com.au%252Fstatic%252Fmedia%252F208820_billy_madison2.jpg%26rurl=http%253A%252F%252Fwww.yourmovies.com.au%252Fslideshow%252F%253Fsite_section_id%253D666%2526action%253Dview%26size=163KB%26name=Billy%2BMadison%26p=billy%2Bmadison%26oid=848671f0294c1a4ef2fb79618ca94786%26fr2=%26no=177%26tt=81800%26b=161%26ni=20%26sigr=127qee9uq%26sigi=11srfjo5m%26sigb=13fn82tuf

Adam Smith Quote

• “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.”

http://rds.yahoo.com/_ylt=A0WTeffpfKNMSiIAlj2JzbkF;_ylu=X3oDMTBwYWhxM3BqBHBvcwMyBHNlYwNzcgR2dGlkA0kxMjZfNzY-/SIG=1i1avj9df/EXP=1285869161/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dadam%252Bsmith%2526ei%253Dutf-8%2526fr%253Dyfp-t-963%26w=190%26h=227%26imgurl=www.academicamerican.com%252Fjeffersonjackson%252Fimages%252Fadamsmith.jpg%26rurl=http%253A%252F%252Fwww.academicamerican.com%252Fjeffersonjackson%252Ftopics%252Fjqadams_americaneconomy.html%26size=6KB%26name=Adam%2BSmith%26p=adam%2Bsmith%26oid=2f5385115525c081c523f5f17f211bc5%26fr2=%26no=2%26tt=377000%26sigr=12k6vv6as%26sigi=11ubp4gkl%26sigb=12flnbrhc

Absolute Advantage

• The ability of one person, company or country to produce more of a good or service than others using the same amount of resources

http://rds.yahoo.com/_ylt=A0PDoS1tf6NMcVMA8ImJzbkF;_ylu=X3oDMTBxbGoyNDYwBHBvcwM2NQRzZWMDc3IEdnRpZANJMTI2Xzc2/SIG=1kdnqkhdo/EXP=1285869805/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dassembly%252Bline%2526b%253D61%2526ni%253D20%2526ei%253Dutf-8%2526xargs%253D0%2526pstart%253D1%2526fr%253Dyfp-t-963%26w=761%26h=599%26imgurl=hsimonis.files.wordpress.com%252F2010%252F07%252F761px-final_assembly_2.jpg%26rurl=http%253A%252F%252Fhsimonis.wordpress.com%252F2010%252F07%252F22%252Fcar-sequencing%252F%26size=140KB%26name=Assembly%2BLine%2Bfo...%26p=assembly%2Bline%26oid=4f79b4f8f0264ee03810859e824bf63f%26fr2=%26no=65%26tt=487000%26b=61%26ni=20%26sigr=11o3l6aam%26sigi=11v9lkfrr%26sigb=13e4umqg4

Comparative Advantage

• A lower opportunity cost than that of your competitor

• Give up less than the competition to produce a good

http://www.google.com/imgres?imgurl=http://2.bp.blogspot.com/_tA7efc0Tw10/SuIlDMKpooI/AAAAAAAAAK4/qIHaSCqR3NY/s400/snack%2Bpack.JPG&imgrefurl=http://zachandkimberlymiller.blogspot.com/2009/10/5-products-i-am-glad-i-discovered.html&usg=__kAdhq4LiFz3uBGjlxufhQpwMMsQ=&h=354&w=400&sz=38&hl=en&start=5&zoom=1&tbnid=YE5xmo-Co9Y8gM:&tbnh=110&tbnw=124&ei=UbOFTpOGGaLs0gGhwMn_Dw&prev=/search%3Fq%3Dsnackpacks%26um%3D1%26hl%3Den%26safe%3Dactive%26sa%3DN%26rlz%3D1T4ADSA_enUS399US400%26tbm%3Disch&um=1&itbs=1

Comparative Advantage Output Problems

The following are the amount of cars and bikes Mike and Mary can produce in 1 day

# of cars # of Bikes

• Mike 4 6

• Mary 2 8

Comparative Advantage Input Problems

The table below indicates the number of labor hours required in Country X and Y to produce one unit of food or one unit of clothing.

Country Food Clothing X 30 hours 40 hours Y 10 hours 20 hours

Documents

Macro Chapter 5 Presentation 1 Trade surplus, trade deficit, GDP, Absolute/Comparative advantage