Warm-up

• Define the following and create two sentences with two of the key words in each:1. Imports2. Exports3. Surplus4. Deficit

International Economics

EQ: Why should we trade with other nations?

What is meant by a FAVORABLE balance of trade?

Balance of Trade is--

Value of the Exports = Value of the imports

What do we call it when --

Value of the exports > Value of the imports

Trade Surplus

Value of the exports<Value of the imports

THE U.S.A!!Trade Deficit

What do we call it when --

What is the U.S. trade deficit?

Analyze….

• What can we say about the green nations?

• How about the red?

What is the relationship to the trade and GDP?

Y = C + I + G + NX

Where is your shirt from?

Japanese Shipping Company

So, where do most U.S. imports come from?

Korean Shipping Company

It is fairly obvious, which country is our

trading partner?

#1

CANADA

Top 15 International Trading Partners

1. Canada 2. China 3. Mexico 4. Japan 5. Germany 6. United Kingdom 7. South Korea 8. France 9. Taiwan10. Netherlands

Top 5 Countries Receiving U.S. Exports1. Canada2. Mexico3. Japan4. China5. United Kingdom

Top 5 Countries Supplying U.S. Imports 1. Canada 2. China 3. Mexico 4. Japan 5. Germany

What is the U.S. # 1 import?

What does the U.S. export?

• High tech items:– industrial lathes – computer chips– fighter jets – health care products

With a partner, why do nations trade?

Comparative Advantage!!!

I am going to prove that specializationworks. I am going to name a state andyou tell me what that state specializesin:

Idaho Potatoes

Florida Oranges

Texas Oil or cattle

Michigan Automobiles

Nevada Any illegal activity thatyou can think of

Absolute and Comparative Advantage

Larnetta types 120 w.p.m. with 0 errorsMarquis types 60 w.p.m. with 0 errors

Who should do the typing?

Larnetta. Why?

Larnetta can type ABSOLUTELY faster thanMarquis can. What type of advantage doesLarnetta have over Marquis?

Absolute Advantage

Absolute Advantage--

One entity can produce somethingeither faster than or greater thananother entity.

I forgot to tell you--Larnetta is a lawyer.

A lawyer earns $60 an hour.

A secretary earns $6 an hour.

A 600-word document has to be typed, how long does it take eachperson to type this document?

How long does it take L to typethis document?

How long does it take M to typethis document?

Who should do the typing?

Marquis

Comparative Advantage

One entity can produce somethingat a LOWER MARGINAL OPPORTUNITYPRODUCTION COST than anotherentity

What is Larnetta’s opportunity cost compared to how much a secretary makes?

Take absolute advantage and KICKIT OUT THE DOOR. The more important of the two is--

Comparative Advantage

Remember this? Production Possibilities Frontier AKA “The PP

Curve” what does it show us?

school

work

Who has an absolute advantage in TVs? Fertilizer?

Japan U.S.

TV

Fertilizer

TV

Fertilizer

80

20

50

50

Who has the comparative advantage in the production of TV’s? Fertilizer?

Fertilizer TVs

Japan 20

1 ton Fertilizer = 4 TV’s

80

1 TV = ¼ ton Fertilizer

U.S. 50

1 ton Fertilizer = 1 TV

50

1 TV = 1 ton Fertilizer

What is Japan’s opportunity cost of 1

ton fertilizer?

What is Japan’s opportunity cost of 1

TV?

What is the U.S.’s cost of 1 ton

fertilizer?What is the U.S.’s

opportunity cost of 1 TV?

What good should each country specialize in?

Review

Cars Shoes

Japan 10 20

Brazil 6 6

1. What country has the absolute advantage in car production?

2. Absolute advantage in shoe production?3. What country has the comparative advantage in cars?4. Comparative advantage in shoes?5. What good should each country specialize in?

Boeing 787

Boeing 787, a Global Project

List three possible benefits Boeing receives as a result of partnering with companies in other countries.1.2.3.

List three common characteristics all of the countries making parts for the 787 share.1.2.3.

List three possible costs of Boeing’s decision to purchase 787 parts from companies in other countries.1.2.3.

How is the production of the Boeing 787 a good example of explaining specialization and comparative advantage?

What do you think?

1. If the U.S. sells computers to Japan, in what currency does Japan purchase the computers? What could the U.S. do with the currency it receives?

Exchange Rates

Why do they fluctuate?

Assume that the United States and France are theonly two countries in the world and that exchange rates between the two countries are flexible.

Assume that there is an increase in the U.S. demand for French goods. Explain how this increase in demand will affect each of thefollowing.

(i) The supply of dollars(ii) The international value of the dollar

S

D

Currency doesn’t flow this way

S

D

Dollar Euro

dollar

Euro

S1

P

Q

P

Q

P1P

Q Q1

D1P

Q

P1

Q1

Supply

buy

Pay

French goods

© 2007 Thomson South-Western

Nominal Exchange Rates

• Appreciation refers to an increase in the value of a currency as measured by the amount of foreign currency it can buy.

• Depreciation refers to a decrease in the value of a currency as measured by the amount of foreign currency it can buy.

© 2007 Thomson South-Western

How might exchange rates affect your everyday lives?

• http://www.npr.org/blogs/money/2011/11/21/142500594/why-a-new-york-cheese-buyer-hangs-on-the-euros-fate

1. Where does Murray’s get most of its cheese?

2. How is Aaron Foster’s financial well-being tied into Europe?

3. In what currency does Aaron purchase his cheese?

4. How does the cheese get to the port for shipment in Europe?

5. Does he pay more or less from his cheese when the Euro drops in value?

6. Why does he not want the situation in Europe to worsen?

© 2007 Thomson South-Western

Review

1. What are the three major trading? blocks/alliances we have read about?

2. What are two arguments for free-trade (think about NAFTA)?

3. What is an arguments against?

4. What are four barriers to trade?

5. Of these barriers, which one is predominantly used for political reasons?

?

?

?

?

?

?

Weak or strong?

Summary

• What happens to net exports when the dollar gets stronger?

• What happens to net exports when the dollar gets weaker?

• When is it better to travel abroad – when the dollar is weak or strong relative to other currencies?

China and the Dollar

• http://www.econedlink.org/interactives/index.php?iid=151