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Understanding International Trade: Absolute & Comparative Advantage

Learn the significance of absolute and comparative advantage in international trade, trade barriers, and agreements. Discover the impact of resource distribution, specialization, and trade agreements on global commerce. Explore trade barriers like tariffs, quotas, and trade agreements such as WTO, EU, NAFTA, DR-CAFTA, and FTAA.

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Understanding International Trade: Absolute & Comparative Advantage

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  1. Chapter 17 International Trade

  2. Absolute and Comparative Advantage • Resource Distribution and Specialization • Natural Resources • Capital and Labor • Unequal Resource Distribution • Specialization and Trade • Export – good or service sent to another country • Import – good or service brought in from another country

  3. Absolute and Comparative Advantage • Absolute Advantage • The ability to produce more of a given product using a given amount of resources • Comparative Advantage • The ability to produce a product most efficiently given all the other products that could be produced

  4. Absolute and Comparative Advantage -Importance of Opportunity Cost - Mutual Benefits

  5. Trade Barriers and Agreements • Trade Barriers • Trade restriction • Tariff – tax on imported goods • Quotas and VERS – cap on amount that can be imported/ voluntary export restraint • Licenses, Regulations, Sanctions, Embargos

  6. Trade Barriers and Agreements • Effects of Trade Barriers • Increased Prices for Foreign Goods • Trade Wars • Arguments for Protectionism • Protecting Jobs • Protecting Infant Industries • Safeguarding National Security

  7. Trade Barriers and Agreements • Trade Agreements • World Trade Organization (WTO) • The European Union (EU) • NAFTA • DR-CAFTA and FTAA

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