AAA-Ch 18-PDF-FALL2010

AAA-Ch 18-PDF-FALL2010 - • Market price of steel has...

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Unformatted text preview: • Market price of steel has increased. Please use a graph to show how that will affect the market price and quantity of knives made from steel. Assume ceteris ceteris paribus. • Although the global economy remains shaky, hotel companies are building a slew of new hotels in India and China. As a result, ceteris paribus, what would you expect to happen to the market price and quantity of hotel rooms in those areas. (Use a graph to show) • John Allison, former CEO BB&T • Thursday, 4-5:30 Business building 4Rovetta Wade Conference Room • Venezuela • The cost of computer components fall. What would you expect to happen to the market P & Q of computers, ceteris paribus? • What would you expect to happen to the market P & Q of computer software, a complementary good to computers? Chapter 18 – Gaining from International Trade Chapter 18 – Gaining from International Trade Chapter Learning Objectives: 1. Realize the size and growth of US Trade 2. Recognize why specialization and trade generates gains (wealth) (wealth) 3. Apply Comparative Advantage analysis to international trade 4. Describe types of trade barriers and their effects 5. Recognize reasons for implementing trade restrictions 6. Clear up any misconceptions about international trade PRS Which of the following would be most likely Which to help the residents of a nation produce a larger output and consume a wide variety of products at economical prices? Where does trade come from? Surplus Shortage 1. imposition of tariffs on imported goods 2. quotas that protect domestic businesses against foreign producers that pay workers low wages 3. free trade 4. exchange rate controls Without international trade, what would we do with shortages and surpluses? Sweat Shops Sweatshops should be forced to pay higher wages and maintain better working conditions. 1. I agree with that statement 2. I disagree with that statement. PRS Americans can do their part to help protect people in foreign nations from the evils of sweatshops if we refuse to buy products from corporations that run those sweatshops. WITH international trade, what do we do with shortages and surpluses? 1. I agree with that statement 2. I disagree with that statement. VIDEO—Sweatshops VIDEO— Highlights of “sweat shop” video: Highlights shop” Sweatshops, con’t • Protesters shouting “Union shop, not • Insisting on higher wages closes factories, sweat shop!” Why? shop!” • People who work in sweatshops: their generation lives better than previous generations. • Nike pays 2 times what local factories pay and 3 times what local farmers make for much harder work • Start in sweatshops, move on to better jobs Conclusions: • Good intentions don’t always make good don’ policies. (In this case, the college students who were protesting to increase wages in sweatshops.) eliminating jobs to the poor people of that community. • Walmart cancelled their contract with Kathy Lee’s factory in Honduras. Lee’ Hundreds of jobs were lost. • Unicef reports: when factories close, instead of young girls being better off, many must turn to prostitution (Hence John (Hence Stossel’s comment about clueless, rich Americans) Stossel’ U.S. in late 1800s (during the second (U.S) industrial revolution), what kinds of jobs did we have? • Moved from farms to cities • Mines, factories, industrial • Increase in disease, overcrowding • BUT…..this led to increases in BUT… transportation (intercontinental RR), communication (telegraph), better ways of farming (cotton gin) http://americanhistory.about.com/od/industrialrev/a/indrevoverview.htm U.S. in late 1800s (during the second (U.S) industrial revolution), what kinds of jobs did we have? • Moved from farms to cities • Mines, factories, industrial • Increase in disease, overcrowding • BUT…..this led to increases in BUT… transportation (intercontinental RR), communication (telegraph), better ways of farming (cotton gin) • Is this another example of “creative destruction?” destruction?” Who are we to say that other nations can’t go through what we did and end up in the same place we are now – the richest nation on the face of the earth? Part time jobs…do they teach you anything? What you are learning now, you will take with you to your profession – worth ethic, getting along with people, taking direction, training others…this is what developing nations are doing now. LEARNING. Today, 90% of jobs in our economy are in the service industry, leaving only 10% in manufacturing. ASIDE: ASIDE: • Today, 90% of jobs in our economy are in the service industry, leaving only 10% in manufacturing. • Are we worse off? • Are wages lower than if we had more manufacturing jobs? • Are we too dependent on foreign producers? • Are wages lower now? • The truth? In most service sectors, wages exceed those of the manufacturing sector: Sector • information (including telecom) government educational services finance and insurance transportation/warehousing construction wholesale trade manufacturing health care and social service retail trade accomodations / food services • Today, 90% of jobs in our economy are in the service industry, leaving only 10% in manufacturing. median wage $23.10 $20.86 $19.85 $19.63 $18.39 $18.38 $17.72 $16.62 $15.65 $10.55 $ 8.62 Source: BLS 2008 National Industry Survey Trade Restrictions Are we too dependent on foreign producers? U. S. Manufacturing. Value of Shipments U. Millions of U.S. dollars, 2000 = base year 1999 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 $ 342,374 $ 344,369 $ 315,245 recession $ 317,724 recession $ 337,649 $ 371,534 $ 409,518 $ 407,730 $ 420,528 Source: http://www.economagic.com/em--cgi/data.exe/cenm3/amtmvs Source: http://www.economagic.com/em $ 456,89 Trade restrictions (tariffs, quotas) that limit imports from other countries save U. S. jobs and expand employment in the U.S. 1. I agree with that statement 2. I disagree with that statement PRS What do trade restrictions do? • Decrease quantity • Increase prices • Create deadweight loss to society – Besides, higher prices and lower quantity, Eliminates the gains from trade, factories close, unemployment increases, income decreases and they can’t buy from US. can’ Types of trade restrictions Types • Tariff on imports – Raises the price of imports so Qd will decrease – Reduces imports – Generates income for Gov’t (small) Gov’ • Quotas – limits physical no. of units that can be imported --Same effects as tariffs, but generates NO revenue for --Same U.S. Government. --Embargos (the ultimate quota). --Embargos Who benefits from trade restrictions? Who • Protected industries Who asks for trade restrictions? • Protected industries – • For example: banking industry & zero interest rate on checking accounts • Buggy Whip manufacturers lobbying to stop the manufacturing of automobiles (PMA) Trade restrictions : Trade Who benefits from trade restrictions? • Protected industries Who asks for trade restrictions? 1. Decrease quantity & choice to consumers 2. Increase prices to consumers 3. Create a deadweight loss to society from loss of exchange • Protected industries, unions Who is worse off for trade restrictions? • • • • U. S. Consumers Foreign Consumers Foreign producers U. S. Exporters PMA: Which of the following would be expected if tariffs in the U. S. on foreign produced autos INCREASED? Foreign Aid 1. Demand for those foreign autos would increase, causing price of autos to increase in both in U. S. & in other nations 2. Unemployment in the domestic auto industry would rise. 3. Domestic price of autos would decrease. 4. Number of foreign autos purchased in the domestic market would decrease PRS U. S. foreign aid to very poor U. foreign nations, effectively fights poverty in those undeveloped nations. 1. I agree with this statement. 1. 2. I disagree with this statement. Popular Trade Fallacies: 1. Foreign Aid will reduce poverty in other countries Analogy: • If I GIVE you all an A. Are you smarter? I can give you a grade but are you better off in terms of knowledge? …..or • Give a man a fish and he eats today … teach him to fish and he eats for a lifetime Survey Questuion – Bono and Angelina Jolie are right – The best way to cure poverty in our lifetime is for the U. S. and other developed nations to increase foreign aid to very poor nations. 1. I agree with this statement. 2. I disagree with this statement. Video—Foreign Aid Video— PMA: What was the cure for poverty in Hong Kong? 1. Increased foreign aide 2. Secure property rights 3. Democracy 3. 4. Low marginal tax rates 5. Less intrusive government (small G Ch. 18 We’re talking about popular trade fallacies. We’ve already discussed: 1. Sweatshops 2. Trade restrictions 3. Foreign aide as a % of GDP) Next, we go to: 4. Outsourcing Popular Trade Fallacies: Outsourcing Outsourcing 4. Outsourcing jobs is a zero sum game (someone gains and someone else loses). PRS : PRS Shipping jobs overseas increases unemployment in the U. S. but lowers unemployment in the foreign nation. Shipping jobs overseas (outsourcing) increases unemployment in the US but lowers unemployment in foreign nations. 1. I agree with that statement 1. I agree with that statement 2. I disagree with that statement 2. I disagree with that statement VIDEO—outsourcing VIDEO— PMA: Who is helped by outsourcing? Who 1. Consumers who now pay lower prices for domestic goods from the outsourced market 2. people who previously had the jobs that are now outsourced abroad 3. People who stand to gain employment in the U.S. from the expansion of the businesses that are outsourcing 4. U.S. exporters of OTHER goods who now stand to sell MORE goods to nations that now have higher incomes. Thus, it’s institutions and policies it’ institutions policies of an economy that determine the growth and prosperity of a nation. Among those institutions are smaller government, lower marginal tax rates, free trade and marginal protection of property rights. Thus, it’s institutions and policies Thus, it’ institutions policies of an economy that determine the growth and prosperity of a nation. Among those institutions are smaller government, free trade and protection of property rights. Let’s look at an example: Let’ In conclusion, ch. 16, 17 & 18 • What leads to economic growth? • Economic Freedom. • What leads to economic stagnation? • Big government, high tax rates and low economic freedom. The Irish Miracle Freedom leads to innovation Car powered by compressed air Command economies lead to innovation of another sort.... one horse power Compare 670 Horsepower to… Cattle Truck Air conditioning, anyone? Air END of CH. 18 ...
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This note was uploaded on 04/02/2012 for the course ECO 2013 taught by Professor Slate during the Fall '10 term at Florida State College.

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