Chapter 30 -...

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www.swcollege.com/bef/arnold/instructor/arnold6e/im30.doc CHAPTER 32 International Trade Chapter 32 begins the final unit of the text. This chapter, along with the following, looks at the theory of international trade and finance. Chapter 32 focuses on the theory of international trade: why nations trade, how they determine what to trade, and how and why some nations restrict free international trade. Specifically, we are dealing here with the exchange of (real) goods and services. Chapter 33 will turn to exchange of another kind: currency exchange, both as a facilitator of international trade and as an end to itself. We are also dealing, specifically, with the exchange of (real) goods and services between countries, and, as we will see in this chapter and the next, there are some clear distinctions between intranational and international trade. CHAPTER OBJECTIVES Upon completing this chapter, your students should be able to: 1. Explain how, if a country specializes in and trades the good in which it has a comparative advantage, it can make itself better off. 2. Use the economic tools of consumers’ and producers’ surplus to identify the effects of tariffs and quotas. 3. Explain how tariffs, quotas, and free trade affect domestic consumers. 4. Discuss the politics of tariffs and quotas. 5. Discuss the arguments for and against trade restrictions. KEY TERMS comparative advantage • quota tariff dumping “voluntary” export restraint (VER) 50
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51 Chapter 32 CHAPTER OUTLINE I.INTERNATIONAL TRADE THEORY —How important is trade to most nations’ economies? Why do nations trade? How do nations determine what to trade and how much? Why do people in different countries trade with one another?—As we have seen before, mutually beneficial exchange between two or more people allows for specialization, division of labor, and significant gains in efficiency and total output. The economic rationale for international trade is much the same. Different countries have different natural resources, labor conditions, skills, and institutions; by specializing in the production of those goods for which each country is best suited and trading for other needs, all countries may be made better off by international exchange than by attempting to be self-supporting. What does the United States export and import? Major U.S. exports included automobiles, computers, aircraft, a variety of agricultural products, scientific instruments, coal, and plastic materials. Major U.S. imports included petroleum, automobiles, clothing, iron and steel, office machines, footwear, fish, coffee, and diamonds. A.How Do Countries Know What to Trade? —To explain how countries find which goods they are “best suited” to produce and trade, we turn to the principle of comparative advantage.
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Chapter 30 -...

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