ln10_internationalmarkets - Lecture 10: International...

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1 Lecture 10: International Markets I. Why trade with other countries? Same reasons people trade with each other - because it's beneficial to do so. But two specific reasons when looking at international trade 1. Absolute Advantage : Consider countries A and B. A can make brooms better and cheaper than B can make brooms, whereas B can pump oil better and cheaper than A can pump oil. So A trades brooms to B for oil. 2. Comparative Advantage : A can both make brooms and pump oil better than can B. However, between broom making and pumping oil, A does brooms the best. So here it still makes sense for A to concentrate on making brooms and trade brooms to B for oil. Example in class: Your favorite professional athlete, who is in excellent condition, likely doesn't mow the lawn at his/her home, even though he or she could do it better than anyone else. But the athlete hires someone to mow the lawn because the time the athlete would use for lawn mowing could be better spent practicing, considering investments, etc. This is again the idea of opportunity cost. II. Tradeoffs in foreign trade 1. When trade with a foreign country does occur, and domestic consumers switch from purchasing from domestic companies to purchasing from foreign companies, domestic investors and workers in those domestic companies lose. 2. Presumably domestic consumers save money by buying from foreign companies. So one approach is to tax away some of those benefits, or gains, and use the proceeds to compensate or assist the domestic workers who lose. Example:
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This note was uploaded on 12/08/2008 for the course ARE 201 taught by Professor Eryuruk during the Fall '08 term at N.C. State.

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ln10_internationalmarkets - Lecture 10: International...

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