1. The document discusses concepts related to international trade including absolute advantage, comparative advantage, specialization of labor, and barriers to free trade such as tariffs and quotas. 2. It uses examples of Honduras and Cuba to illustrate comparative advantage and how trade benefits both countries. 3. The document also lists some benefits and drawbacks of free trade and discusses international trade organizations and agreements such as NAFTA, the EU, and WTO.

1. Trade opener
1. Where was your shirt made?
(Have your neighbor check)
2. What type of labor makes t shirts?
3. What type of labor designs cellphones?

2. Comparative Advantage Activity

3. Absolute Advantage
Whoever can do the job the
fastest
• Total hours to finish jobs

4. Comparative Advantage
Whoever can do the job with the
lowest opportunity cost

5. Another way of looking at
Comparative Advantage
• Should Jason Terry clean
his own house?

6. Another way of looking at
Comparative Advantage
• Should Lebron James
clean his house?

7. Specialization of labor
• Firms &
countries figure
out more efficient
methods of
production
• Effect on
concept of
trade?

8. Honduras
• 100 tons of
sugar/year
OR
• 100 tons of
bananas

9. Cuba
• 600 tons of
sugar/year
OR
• 200 tons of
bananas

10. Cuba & Honduras
• Scarcity of farm
land
• Who has
absolute
advantage?
• Who has the
comparative
advantage of
trade?
• Why is this
better?
Honduras:
Cuba:
100 tons of sugar/year
OR
100 tons of bananas
600 tons of sugar/year
OR
200 tons of bananas

11. Who has comparative advantage:
T shirts, financial, medical services,
entertainment, shoes
• Land, labor and capital in Honduras
• GDP per capita: $2,200 / Population: 8 million
• Literacy rate: 85%, 2 universities
• Land, labor and capital in USA
• GDP per capita: $48,000 / Population: 300 million
• Literacy rate: 90%, 800+ universities

12. Trade
• Free trade = absence of
restrictions of
goods/services
• List 3 winners & 3 losers if
all countries had free trade
• Winners:
• Losers:

13. Benefits of FREE TRADE
• Lower prices for consumers
• More competition leading to better
products
• Job opportunities for producers
• Job opportunities in buyer countries
• Opportunity costs?

14. Source: World Bank

15. Drawbacks of FREE TRADE
• Structural unemployment
• Lower union membership
• Ethical problems

16. Free Trade Assignment
• Letter to John McCain
• 2-3 paragraphs
considering:
Should the US
expand its free trade
zone to include all of
the Western
Hemisphere?
Consider both sides,
but choose the better
one.

17. 1. When they were for sale,
how often did you buy
Twinkies?
2. Draw a supply/demand
graph showing your
answer to #1, comparing
a time when you were
younger? (HINT: TRIBE)
3. What 2 goods does a
poor country like
Guatemala have a
comparative advantage
producing?
Bellringer

18. Types barriers to FREE TRADE
• Tariffs
• Tax on imports
• Result: higher price for consumers, job saving
– Opportunity cost
•
•
•
•
•
Quotas
Limit on imports
Result: high prices, less choice
Examples: Japanese full sized trucks
Lexus, Infinity, etc

19. Types barriers to FREE TRADE
• Embargos
• Banning imports
• Result: less exports for
embargoed country
• Subsidies
• Gov’t help for industries
• Result: higher taxes locally,
other countries retaliate

20. Twinkie article
• What really killed the twinkie?
• How would this be a problem in the future
for the US?
• Who is benefiting from this situation?
• Who is suffering?
• What should the US congress do about it?

21. Other crazy import tariffs
• Japan: 700% tax on rice
• European Union: orange juice (31%), peanut
butter (132%), and tobacco products (350%)
• South Korea: 100% automobiles
• Canada: 28% leather shoes
• United States: 249 % solar panels, Waterproof
shoes with a metal toe cap 37.5 %
• Brazil: 60% tablet computers

22. Let’s consider some systems
• EU, WTO, Trading blocs, NAFTA

23. NAFTA
• 1994-present
• US, Canada, Mexico
• Eliminated thousands
of tariffs
• Expanded to CAFTA
in 2005

25. G-8
•
•
•
•
•
•
•
•
• All fought
USA
WW2
Italy
Canada • All in IMF
Russia
Japan
Germany
France
Great
Britain
Developing World
• Countries still
developing
• “Third World”
• Some successful:
– China, India, Costa
Rica
• Some failing:
– Haiti, Zimbabwe,
Myramar

26. European Union
• 1954- Present
• Free movement
of goods,
services and
people
• Euro-zone
• Contrast with
US/Latin Am.

27. World Trade Organization
• 1995-present
• 152 countries
• Goal = Global free trade
• Closely related to IMF
• controversial

28. Free Trade Assignment
• Letter to John McCain
• 2-3 paragraphs
considering:
Should the US
expand its free trade
zone to include all of
the Western
Hemisphere?
Consider both sides,
but choose the better
one.

29. Tires
Save American Jobs Bill
• 2 producers: tariff on all foreign goods
20%
• 3 groups of consumers
• Sellers decide price and give pitch
• Buyers decide which tires to buy

30. Trade Balance
•
•
•
•
Value of exports > value of imports
Trade Surplus
Net Exporter
Germany, China, Canada, Norway
•
•
•
•
Value of imports > value of exports
Trade Deficit
Net importer
USA, Mexico, Japan,

31. Balance of payments
• Measure of trade between a country and the rest
of the world
• Current Account:
• Trade, income, transfers
• $$$ out, must come back
• Capital Account
• Financial Account
• Investments
• Foreign Reserves
• Draw on board