S exports and imports for the latest month and year

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Statistics) at www.emcp.net/ exports_imports. As an aside, you may be interested in knowing which countries the United States trades with often and in a large way. These countries include Canada, Germany, Mexico, Japan, United Kingdom, and China. If you would like to find the trade balance between the United States and any country in particular, you can go to www.emcp.net/tradebalance and simply click on the relevant country. For example, in April 2005, the United States sold $3.4 billion worth of goods to China and bought $18.1 billion worth of goods from China. In other words, for that month, the United States had a trade deficit of -$14.7 billion with China. Absolute and Comparative Advantage Suppose that using the same quantity of resources as Japan, the United States can produce either of the following two combinations of food and clothing: • • Combination A: 150 units of food and 0 units of clothing Combination B: 100 units of food and 25 units of clothing Suppose that Japan, using the same quantity of resources as the United States, can produce either of the following two combinations of food and clothing: • • Combination C: 30 units of food and 120 units of clothing Combination D: 0 units of food and 180 units of clothing When a country can produce more of a good than another country using the same quantity of resources, it is said to have an absolute advantage in the production of that good. In our example, the United States has an absolute advantage in producing food, because the maximum amount of food it can produce (150 units) is greater than the maximum amount of food Japan can produce (30 units). Japan, in contrast, has an absolute advantage in producing clothing, because the maximum amount of clothing it can produce (180 units) is greater than the maximum amount of clothing the United States can produce (25 units). Suppose that in year 1, Japan and the United States do not trade with each other. Instead, each nation decides to produce some quantity of each good and consume it. The United States produces and consumes combination B (100 units of food and 25 units of clothing), and Japan produces and consumes combination C (30 units of food and 120 units of clothing). In year 2, things change. Each country decides to specialize in the production of one good and then trade some of it for the other good. Which good—clothing or food—should the United States specialize in producing? Which good should Japan specialize in producing? In general, a country should specialize in the production of the good in which it has a comparative advantage—the good it can produce at a lower opportunity cost. Determining Opportunity Cost Recall from Chapter 1 that the opportunity cost of producing a good is what is given up to produce that good. For example, if Julio gives up the opportunity to This worker is testing new computers at a Dell manufacturing plant in Texas. The U.S exports large numbers of computers every year. absolute advantage The situation in which a country can produce more of a good than another country can produce with the same quantity of resources. specialize To do only one thing. For example, when a country specializes in the production of a good, it produces only that good. comparative advantage The situation in which a country can produce a good at lower opportunity cost than another country. Section 1 International Trade 397 15 (390-427) EMC Chap 15 11/18/05 9:12 AM Page 398 T he United States buys more from the entire world than the world buys from it. In other words, the United States has a trade deficit. But it doesn’t follow that the United States buys more from every country in the world than every country in the world buys from it. For example, in 2003, Australia bought more from the United States than the United States bought from Australia. In the same year, though, the United States bought more from China than China bought from the United States. Here is a list of the top five countries that the United States bought more from in 2003. The trade deficit (in dollars) that the United States had with that particular country is provided. China: $123.9 billion Japan: Canada: Mexico: Germany: $65.9 billion $54.3 billion $40.6 billion $39.1 billion produce three towels if he produces a blanket, then the opportunity cost of the blanket is three towels. What is the opportunity cost of producing food for the United States? What is the cost for Japan? We know that the United States can produce either combination A (150 units of food and 0 units of clothing) or combination B (100 units of food and 25 units of clothing). Suppose it is producing combination B. What are the benefits and costs of deciding to produce combination A instead? By producing combination A, the country will make itself better off by 50 additional units of food, but it will have to give up 25 units of clothing to do so. In other words, for every 1 extra unit of food, it will have to give up ½ unit of clothing. In econo...
View Full Document

Ask a homework question - tutors are online