Unit Two - Unit Two International Trade Free Trade no...

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1 Unit Two: International Trade Free Trade : no governmental involvement; company to company.(across seas) NAFTA : North American Free Trade Agreement. => Lack of protectionism: the government is not protecting a domestic industry. (doesn’t want to compete with a foreign industry) Protectionism : 1) Tariff : tax on imports. Two types : (a) non-prohibitive -- limits domestic consumption of a product. (b) prohibitive -- tax so high that it will virtually eliminate domestic consumption of a product. 2) Quota : numerical maximum limit => lack of supply of product –> increased price. (supply curve shift left) 3) Anti-Dumping Law : selling a product in a foreign market at a price cheaper than in its own domestic market. => predatory pricing. 4) Voluntary Self-Restriction : a country agreeing not to ship their product. 5) Involuntary Restriction : “lost” goods from a country not agreeing to stop shipment of product. The Game of International Trade : 1) Zero-Sum Game : everything adds up to zero. (ex) poker; one winner, one loser. 2) Positive-Sum Game : everybody wins. (ex) coke caps; “free coke.” 3) Absolute Advantage : the one with the most has the absolute advantage in the production. => mutually interdependent absolute advantage (one country produces more of one product while the other country produces more of the other product) –> specialization , produce only one of products, then commence to trading. –> terms of trade.
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: only exists if one country has an absolute advantage of both products; yet their trading partner has a lower opportunity cost in production of one of those products. TPC : Trading Possibility Curve. Macro Economic : (the whole “pizza”) GDP = C + I + G + (X – M) Sectors : (the pieces of the “pizza”) 1) C = Consumption : finished products that max utility now. (a) Non-durable : one use. (such as food and services) (b) Durable : used over and over again. (such as cars and pens) 2) I = Investment : max utility for future. (a) Productive : a product that will increase productivity. (b) Non-productive : something you purchase in the hopes it will be worth more in the future than what you paid today. (such as art and/or comic books) 3) G = Governmental Spending : (public) (a) Exhaustive : when the government spends money in such a way, that resources become unavailable to the private sector. (such as military called to duty) (b) Non-exhaustive : government spends money, but resources are not unavailable to private sector. (such as International Foreign Aid) 4) X and M = Export and Import . large GDP => strong economy small GDP => weak economy Inflation (P.) Unemployment => Recession Leakages => m, t, and SAVE. Injections
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Unit Two - Unit Two International Trade Free Trade no...

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