I’ve two HWs I need help with.The first one, I need someone to watch a video and then take notes I’ve attached the requirements for this assignment down below, This is the video https://www.youtube.com/watch?v=_Qzx9SnG9oUThe second hw, I need someone to make two question charts from the ECON slides I have attached and also I I’ve attached the requirements for this assignment down below.
new_doc_2019_12_15_05.27.14_20191215052738.pdf
new_doc_2019_12_15_05.14.44_20191215051930.pdf
econ_202_chapter_07.pptx_3fglobalnavigation_false.pptx
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Chapter Outline
7.1 The United States in the International Economy
7.2 Comparative Advantage in International Trade
7.3 How Countries Gain from International Trade
7.4 Government Policies That Restrict International Trade
7.5 The Arguments over Trade Policies and Globalization
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Why is there a tariff on running shoes?
99 percent of shoes sold in the United States are made overseas.
The federal government imposes a tax on running shoes imported
to the United States (called a tariff).
• Tariffs are designed to protect domestic workers from overseas
competition.
Do you think the tariff on running shoes makes you better or
worse off?
Do you think it makes Americans in general better or worse off?
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3
7.1 The United States in the
International Economy
International trade has grown more and more important to the world
economy over the past 50 years.
• Falling shipping and transportation costs have made international
trade more profitable and desirable.
• Since 1970, both imports and exports have been steadily rising
as a fraction of U.S. gross domestic product (GDP).
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Trade Barriers
Traditionally, countries imposed high tariffs on imports, believing
that such measured made their own firms and consumers better off.
• But that meant their exports were similarly taxed.
Tariff: A tax imposed by a government on imports
Imports: Goods and services bought domestically but produced in
other countries.
Exports: Goods and services produced domestically but sold in
other countries.
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Who Should Trade?
Should West Virginia trade with Pennsylvania?
Should the US trade with Canada?
Should the US trade with England?
Should the US trade with Japan?
In a national survey over 1983-1987 (GSS):
• 3% of Americans disliked Canada
• 8% disliked England
• 28% disliked Japan
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Figure 7.2 The eight leading exporting countries, 2014
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Figure 7.3 International trade as a percentage of GDP, 2014
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Trans-Pacific Partnership
An agreement between twelve countries, including Vietnam,
Malaysia, New Zealand, Mexico… to reduce trade barriers
Roughly 18,000 tariffs would be removed
The US joined this agreement under Barack Obama
However, Donald Trump removed the US from the agreement
Other countries are currently reworking the agreement without the
US
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Making the Connection: How would the
TPP affect New Balance? (1 of 2)
Founded in 1906, New Balance
is headquartered in Boston, MA.
• It operates 5 U.S.-based
factories manufacturing shoes
• But many of its shoe parts,
and ~75 percent of whole
shoes, are imported.
The Trans Pacific Partnership
(TPP) includes a reduction in
some tariffs on imported shoes
and shoe parts.
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Making the Connection: How would the
TPP affect New Balance? (2 of 2)
The TPP would both help and
hurt New Balance. The reduction
in tariffs would:
1. Make production of shoes
cheaper for them.
2. Make production and import
of shoes cheaper for their
competitors like Nike, which
imports most of its shoes
from Vietnam.
Overall, TPP’s effects on New
Balance are uncertain.
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Why is there a tariff on running shoes?
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Final Thought Experiment
Suppose the US can produce
• A bushel of wheat for $4.00
• A new car for $40,000.00
Thus, the price of car in terms of bushels of wheat is
40,000/4.00=10,000 bushels.
Farmer Joe discovers one night that if he leaves 8,000 bushels in
a shed in the back of his property, he wakes up to find a new car!
What should he do?
Answer: The shed is Japan
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7.2 Comparative Advantage in
International Trade
Recall that comparative advantage is the ability of an individual,
a firm, or a country to produce a good or service at a lower
opportunity cost than competitors.
Comparative advantage arises from having a lower opportunity
cost than your competitor.
Opportunity cost: The highest-valued alternative that must be
given up to engage in an activity.
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Table 7.1 An example of Japanese workers being more
productive than American workers
Japan has an absolute advantage in producing both
smartwatches and tables.
Absolute advantage: The ability to produce more of a good or
service than competitors when using the same amount of
resources.
But comparative advantage means that trade can still be
advantageous for both nations.
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Table 7.2 The opportunity cost of producing smartwatches
and tablets
This table shows what has to be given up to create each good: the
opportunity cost.
If the nations were in autarky, a situation in which a country does
not trade with other countries, these would also be the relative
prices in each country: a smartwatch would trade for half the price
of a tablet computer in Japan, and double the price of a tablet
computer in America.
• Japan would like to trade its cell phones for American tablets,
and vice versa.
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7.3 How Countries Gain from
International Trade
If countries did not trade, they would consume what they
produced.
But if countries have different opportunity costs, they might each
be willing to trade some of what they have a comparative
advantage at producing, for what the other country is (relatively)
good at producing.
• Both countries might be made better off by such a trade.
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Table 7.3 Production without trade
Suppose that initially each country has 1000 hours to spend.
• In that time, Japan might produce 9,000 smartwatches and
1,500 tablet computers.
• In the same time, the U.S. might produce 1,500 smartwatches
and 1,000 tablet computers.
In total, 10,500 smartwatches and 2,500 tablet computers are
produced.
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Production in autarky—preparing for
trade
Production and Consumption → Smartwatches
Japan
United States
Tablet Computers
12,000
0
0
4,000
Observe what happens if each country specializes in its
comparative advantage:
• Japan can produce 12,000 smartwatches.
• The U.S. can produce 4,000 tablet computers.
In total, 12,000 smartwatches and 4,000 tablet computers are
produced.
• Observe that more of both goods are produced.
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Deciding on terms of trade
The terms of trade is the ratio at which a country can trade its
exports for imports from other countries.
No country would accept terms of trade worse than its opportunity
cost—it would be better off producing by itself the goods that it
was importing.
• Terms of trade of one-for-one could be acceptable to both
Japan and the United States.
• With these terms, they might trade 1,500 cell phones for 1,500
computers, ending with the consumption on the following slide:
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Table 7.4 Gains from trade for Japan and the United States
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Why don’t we see complete
specialization?
In the real world, products are not generally produced by only one
nation. Reasons include:
• Not all goods and services can be traded internationally
(medical services, for example).
• Production of many goods involves increasing opportunity costs
(so small amounts of production are likely to take place in
several countries).
• Tastes for products differ (cars, for example); countries might
have comparative advantages in different sub-types of
products.
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What’s the bad news about international
trade?
So far, we have made it appear that international trade is going to
be good for everybody.
• But this is true only on a national level.
Some individual firms and consumers will lose out due to
international trade; in our example:
• Japanese tablet computer firms and their workers
• American smartwatch firms and their workers
These groups would likely ask their governments to implement
protectionist measures like tariffs and quotas, in order to protect
them from foreign competition.
Quota: A numerical limit a government imposes on the quantity of
a good that can be imported into that country.
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24
Where does comparative advantage
come from? (1 of 2)
Comparative advantage can derive from a variety of natural and
man-made sources:
Climate and natural resources
• Some nations are better-suited to particular types of production;
particularly important for agricultural goods.
• Example: bananas in Costa Rica vs. wheat in U.S.
Relative abundance of labor and/or capital
• Some nations have lots of high- or low-skilled workers, or
relatively much or little infrastructure.
• Example: China has lots of low-skilled workers, vs. relatively
many high-skilled workers in the U.S.
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Where does comparative advantage
come from? (2 of 2)
Comparative advantage can derive from a variety of natural and
man-made sources:
Technological differences
• Technologies may not diffuse quickly or uniformly.
• Example: U.S. is strong in product technologies—the ability to
develop new products; Japan is strong in process technologies,
involving the ability to improve processes to make existing
products
External economies
• External economies are reductions in a firm’s costs that result
from an increase in the size of an industry.
• Examples: Silicon Valley, Hollywood, Swiss watchmakers
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Comparative advantage over time—the
U.S. consumer electronics industry
For several decades, the U.S. had a comparative advantage in
producing consumer electronics (TVs, radios, etc.), due to having
modern factories and a skilled and experienced work force.
Over time, other countries like Japan developed superior process
technologies, allowing them to streamline production of these
goods, and produce them cheaper than U.S. firms.
Rising Asian wages are starting to drive the production of
consumer electronic devices back to America, along with the high
computer and software design requirements of many current
consumer electronic devices.
• Example: In 2013, Apple announced that its redesigned Mac
Pro would be assembled in the United States.
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Government Policies That Restrict
International Trade
When a country loses its comparative advantage in producing a
good:
• Its income will be higher from the goods it has a comparative
advantage at producing.
• It can consume the goods other countries are relatively good at
making, at a lower cost.
This suggests countries should not produce goods at which they
do not have a comparative advantage.
But there is often political pressure on governments to preserve
industries that have lost their comparative advantage, or that
never had one in the first place.
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Figure 7.4 The U.S. market for ethanol under autarky
If trade is not allowed in
the U.S. market for
ethanol, all domestic
consumption will be met
by domestic production.
Consumers who are
willing to pay at least
$2.00 per gallon purchase
ethanol, and obtain
consumer surplus.
Domestic producers with
costs lower than $2.00
per gallon sell their
ethanol, and obtain
producer surplus.
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Joining the global ethanol market
Now suppose the American government decides to open up
imports and/or exports of ethanol.
Assume that the world price of gasoline is $1.00 per gallon:
• American will import ethanol.
• American consumers will benefit from cheaper ethanol.
• American ethanol producers will suffer, with a lower price.
How can we decide whether allowing free trade makes Americans
better off overall?
• By comparing the economic surplus in the market with and
without free trade.
Free trade: Trade between countries that is without government
restrictions.
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Figure 7.5 The effect of imports on the U.S. ethanol market
When imports are allowed,
price falls to $1.00 per gallon.
U.S. production falls to 3.0
billion; U.S. consumption
rises to 9.0 billion.
Hence 6.0 million gallons are
imported.
Consumer surplus rises to
A+B+C+D.
Producer surplus falls to E.
Overall, economic surplus
rises; the gains to
consumers outweigh the
losses to producers.
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Government policies restricting trade
Firms that face competition from imported goods lose out when
trade is allowed.
• These firms appear to deserve sympathy, especially when their
workers start to lose their jobs.
Consequently, they can often convince governments to restrict
trade; usually with one of the following:
Tariffs: Taxes imposed by a government on imports.
Quotas and Voluntary Export Restraints (VERs): Numerical
limits imposed upon (quotas) or negotiated between (VERs)
countries on the quantity of a good imported by one country from
another.
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Figure 7.6 The effects of a tariff on ethanol
If the government imposes
a $0.50 per gallon tariff, the
U.S. price rises to $1.50.
U.S. production rises, and
U.S. consumption falls.
• Producer surplus rises by
A.
• The government gains
tariff revenues (T).
• But consumer surplus
falls by A+C+T+D.
Overall, economic surplus
falls by C+D: deadweight
loss.
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Import quota in the U.S. sugar market
Quotas and voluntary export restraints are effectively similar; the
difference is that quotas are imposed unilaterally (by one country),
whereas VERs are negotiated agreements.
The United States imposes a sugar quota, allowing no more than
5.8 billion pounds of sugar to be imported.
• This keeps the U.S. price of sugar ($0.33 per pound) higher
than the world price ($0.20), generating large benefits for U.S.
sugar producers, at the expense of U.S. sugar consumers.
On the next slide, we will calculate just how much each party is
hurt or helped.
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Figure 7.7 The economic effect of the U.S. sugar quota
(1 of 2)
If unlimited imports
were allowed, America
would import about
twice as much sugar
as would be produced
domestically.
The sugar quota
restricts imports,
raising the U.S. price.
Quantity supplied by
U.S. firms increases,
resulting in increased
producer surplus for
U.S. firms
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Figure 7.7 The economic effect of the U.S. sugar quota
(2 of 2)
Foreign sugar
producers
also gain, by selling
at the U.S. price.
Consumer surplus
falls by A+C+B+D
(lower consumption,
higher price).
So deadweight loss
of C+D occurs.
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Costs to society from maintaining import
restrictions
A common argument in favor of maintaining import restrictions is
that it saves domestic jobs.
Economists estimate that without the sugar import restrictions,
about 3,000 jobs in the U.S. sugar industry would be lost.
• That means each job is costing U.S. consumers
$3.26 billion / 3,000 jobs = $1.1 million per job.
And this is probably an underestimate, since cheaper sugar would
open up more jobs (in the candy industry, etc.), and encourage
sugar-using manufacturers to remain in America.
Sugar producers are able to lobby for the tariffs because the cost
to society of the tariffs is spread over many consumers, and the
benefit is concentrated among just a few people.
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Table 7.5 Preserving U.S. jobs with tariffs and quotas is
expensive
The cost to American consumers of maintaining import restrictions
and tariffs is very high.
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Application: Trade and Sanctions
As part of the 2010 Dodd-Frank Act, US companies were
discouraged from buying tin, tantalum, and tungsten from the
eastern Democratic Republic of Congo.
Meant to curb human rights abuses from warlords monopolizing
mining operations.
But do sanctions harm other citizens?
Parker et al. (2016) find infant mortality in villages near the
targeted mines rose by at least 143 percent (compared to baseline
of 72 deaths per 1,000 births).
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Making the Connection: Smoot-Hawley
and the politics of tariffs (1 of 3)
Tariffs on foreign-made shoes in
the U.S. trace back to the 1920s:
• U.S. farmers were struggling,
and lobbied for protection from
imports.
• Politicians in their districts
championed these protections.
• Other politicians promised
their support in exchange for
tariffs on other goods
produced in their districts,
such as shoes; this process is
known as logrolling.
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Making the Connection: Smoot-Hawley
and the politics of tariffs (2 of 3)
These negotiations resulted in
the Smoot-Hawley Tariff Act
(1930).
• Smoot-Hawley raised tariffs to
their highest value in U.S.
history (~60 percent of value
of imports, on average)
• Its effects continue to this day;
e.g. the 2015 U.S. tariff on
shoes contains hundreds of
entries, detailing tariff levels on
different types of shoes.
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Making the Connection: Smoot-Hawley
and the politics of tariffs (3 of 3)
Even worse: these tariffs now
protect a very small industry.
• Employment in the shoe
industry was 275,000 workers,
now 15,000 workers.
And other countries imposed
retaliatory tariffs on our exports
also!
• Modern trade negotiations are
largely aimed at reducing
these trade protections.
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Should we unilaterally remove tariffs and
quotas?
Some politicians argue that we should drop our tariffs and quotas,
but only if the other countries agree to do the same.
• This makes it easier to gain political support for actions that will
genuinely cause economic pain, albeit to a limited number of
people.
But our analysis showed that there is sufficient reason for America
to unilaterally remove its restrictions.
• The U.S. economy would gain from the elimination of tariffs and
quotas even if other countries did not reduce their tariffs and
quotas!
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43
Other barriers to trade
A less-common but still important barrier to trade is the imposition
of higher standards on imported goods.
• Example: Raw milk can be sold in many U.S. states, but cannot
be sold across state lines.
Many governments also restrict imports of certain products on
national security grounds, fearing that in times of war, they would
not have acc …
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