Chap_09 - Chapter 9 International Trade and Trade Policy...

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Chapter 9 International Trade and Trade Policy Purpose: To show the benefits and the costs of engaging in international trade among nations. The arguments are cast in terms of production possibilities, consumption possibilities, supply and demand, and economic surplus. Political aspects of trade and trade policy are mentioned with special attention given to tariffs, quotas, and outsourcing. Length not known at this time Time required to read: About two hours. The early sections of the chapter are somewhat difficult and depend on definitions and concepts from earlier chapters. The later sections are policy oriented and will be easy to read as well as very interesting to students. Lectures required for understanding: Two assuming that some time will be required to review the details of comparative advantage, opportunity cost, and economic surpluses. Summary Trading among nations offers the opportunity for consumers to have the benefit of a larger and more diverse collection of goods and services. That this is true is borne out by reference to the comparative advantages that different nations enjoy. Production possibility curves and consumption possibility curves are used to make these points. The curves are based on two- person two-good examples. The search for equilibrium and maximum efficiency is based on the opportunity costs associated with sacrificing one commodity in order to secure additional units of another. Supply and demand models are used to show the effects of entering the world market and engaging in trade. Results garnered from the supply and demand models are used to help identify who “wins” and who “loses” when trading extends beyond a nation’s borders. The
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supply and demand models are made more explicit by using changes in consumer surplus and producer surplus to trace changes in economic surplus. Tariffs and quotas are explained and their effects are displayed using supply and demand models. Restrictions on free trade are presented as being the result of political decisions. Even so, the economic consequences of such restrictions are not minimized. The chapter ends with a discussion of the impacts of restrictions on economic efficiency and a statement regarding the possibility of meeting similar objectives without resorting to the trade- distortions that come with trade-limiting policies. A brief Appendix casts the chapter’s major arguments in mathematical terms. Outline 1. Introduction 2. Comparative Advantage as a Basis for Trade 3. Production and Consumption Possibilities and the Benefits of Trade a. The Two-Worker Production Possibilities Curve b. The Many-Worker Production Possibilities Curve c. Recap d. Consumption Possibilities With and Without International Trade (pages e. Recap 4. A Supply and Demand Perspective on Trade a. Winners and Losers From Trade b. Recap c. Protectionist Policies: Tariffs and Quotas i. Tariffs ii. Quotas d. The inefficiency of Protectionism e. Recap 5. Outsourcing 6. End of Chapter Materials
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Chap_09 - Chapter 9 International Trade and Trade Policy...

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