Appendix A International Trade
To
Print from an Internet browser, set type size to Smaller by choosing
View, Text
Size and Smaller, and choose File and Print.
You may also need to set the margins to 0.25 inches.
Our Economics Learning Center has information for students, teachers, an professionals.
Our
Free Internet Libraries
improve grades and careers.
A. The United States is the largest exporter in the world.
B. In 1991 exports amounted to $421 billion or 7.5% of GDP.
C. About 20% of the economic growth which took place during the late 1980's and early 1990's
occurred because of increased exports.
D. Foreign nations tend to specialize in manufactured goods demanded by U.S. consumers because the U.S.
is the largest wealthy mass consumer market in the world.
E. The United States imports more than it exports and the resulting debt (cumulative deficit) is approaching one
trillion dollars. This debt has provided foreigners with the dollars necessary to buy billions of dollars worth of
U.S. real estate (especially in Hawaii and California), companies (especially new high-tech start-ups), and
financial assets (stocks and bonds including U.S. Treasuries).
F. Most economists feel free (of restrictions) international trade is of benefit to nations. Individuals within a
nation may be hurt as foreign goods produced by foreign workers replace their domestic counterparts while
politicians argue over the ramifications of allowing creative destruction to occur.
G. "Exorbitant Privilege," old article on why we are not Greece is still relevant
H. Check out AP Economics Review Materials!
Ancient silk road trade routes across Eurasia from Wiki
II. Absolute and comparative advantage
A. Absolute advantage exists when one nation can produce a good or service more economically than another.
B. In the example below, the United States has an absolute advantage over Canada in the production of both
computers (2 hours < 3 hours) and shirts (4 hours < 5).
|
Hours to
Produce Computers Shirts (1) (2) |
Hours Available (3) |
Maximum ComputersProduced 3/1 |
Maximum ShirtsProduced 3/2 |
Our Expert Tutors Can Help With Difficult Assignments. Internships Scholarships Social Science Study Abroad Writing Services |
||
| U.S. | 2 hours | 4 hours | 1200 | 1200/2 = 600 | 1200/4 = 300 | |
| Canada | 3 hours | 5 hours | 120 | 120/3 = 40 | 120/5 = 24 | |
C. Comparative advantage exists when one nation has a lower
opportunity cost than another in the production
of a good or service.
1. Constant opportunity costs will result in the linear production possibility frontiers (PPF) depicted below.
2. The opportunity cost of an item on the
x-axis (shirts) is measured by the absolute value of the PPF's
slope (2 and 5/3 respectively).
3. The opportunity cost of an item on the
y-axis (computers) is the
reciprocal of the x-axis slope, 1/2 and 3/5 respectively.
4. When deciding which country should produce goods,
the country with the lowest opportunity cost is said to be relatively
more efficient and should
produce the good.
5. Canada is relatively more efficient producing shirts
(5/3 < 2) and the U.S.
is relatively more efficient at producing computers
(1/2 < 3/5).
D. Comparative Advantage Practice: Output and Input Questions-AP
Our
Free Internet Libraries
improve grades and careers.
