Chapter 15: international trade bhaye Flashcards
what are the two main exports of canada in 2012
Energy (24.5%)
Industrial goods and material (25.5%)
what are most countries trying to do
maximize their revenue by maximizing their exports
who is Canada’s mains partner
the United-States
Trade issues for Canada and the rest of the world
Agriculture protection
globalization
Trade or aid
agricultural protection
the lower envelope of all possible short-run AC (average cost curves) curves
high barriers to trade to protect their local agriculture
will hurt less developed countries because they want to maximize exports, they will lose out because of high barriers to trade
globalization
Outsourcing of manufactures to Less Developed Countries
Has the West lost good jobs due to outsourcing?
Or is the loss of manufacturing jobs due to technological change?
Or structural change in the economy?
trade or aid
Do trade barriers offset aid to Less Developed Countries?
can be tariffs or non tariffs
why outsource to less developed countries
to lower costs since they have lower labour wages
also reduce cost of machinery as well as resources sometimes
how to lower or weaken trade barriers
with international trade agreements
Trans Pacific partnership
Canada and trade agreements between pacific rim countries
Trump low-key fucking this shit up
Comprehensive Economic and Trade Agreement (2017)
reducing trade barriers between Canada and the European Union
The Law of Absolute Advantage
If one economy uses fewer inputs than another economy to produce a good or service
that economy has an absolute advantage in its production
it means their cost are most probably less to produce outputs than another economy
if a country has an absolute advantage in two goods, would trade still be beneficial?
yeeee boooyyy
will lead to consumption gains
The Law of Comparative Advantage
Countries specialize in the production and export of products they produce at lower relative cost than other countries
take advantage of trade (contries can consume outside of PPF)
principle of comparative advantage:
where one economy is absolutely more efficient in producing both goods, but the degree of that efficiency differs
one individual was more efficient in producing one of the goods than the other in chapter 1, is this a case of absolute advantage?
yeees
we can also do the same for two countries
we will examine the principle of comparative advantage
autarky
no trade world
whatever you produce, you will consume each
Cannot consume outside the PPF
in a comparative advantage between two economies or individuals, is it important to consider the opportunity cost
yes, it is important to consider what each could produce instead of producing whatever they’re producing
to be the most efficient and have a comparative advantage in a certain good, opportunity cost of producing the good
leads to specialization
if a counter has advantage in both goods compared to another country, would it still specialize?
yeeee boooy
the opportunity cost of of a good will be bigger than the other country, hence they will specialize in the good with the lowest opportunity cost
what is the source of comparative advantage
endowments: economies are naturally endowed with different advantages
Endowments as the result of investments – the knowledge economy
A knowledge labour force with high skilled workers will be advantage cause it will use less ressources
But scale economies can also give rise to trade where no strong advantages exist
terms of trade
rate of trade
The result must benefit both economies if they are to trade
Any trading/exchange rate between the rates of transformation will provide the potential for both to consume more
