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Comparative Advantage and International Trade

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The political. economy of regulation. 1. Producer interests are direct and concentrated. ... The Political Economy of International Trade: Graphic Analysis (4) ... – PowerPoint PPT presentation

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Title: Comparative Advantage and International Trade


1
Comparative Advantage and International Trade
  • Specialization and intra-national trade
  • International trade vs. autarky
  • Review of/and concepts developed
  • A. Comparative advantage
  • B. Absolute advantage
  • C. Terms of trade
  • The balance of this lecture is formatted as a
    Word document. It begins on the
  • following coursepack page. The slide
    immediately below belongs to the next lecture.

2
The Political Economy of International Tradeand
Trade Restrictions
  • Review
  • Winners and losers why restrictions?
  • Economics of autarky and embargo
  • Effects of a tariff prices and quantities
  • Effects of a quota prices and quantities
  • Effects of a tariff deadweight LOSS
  • Are there any good arguments for trade
  • restrictions?

3
The Political Economy of International Tradeand
Trade Restrictions (1)
  • I. Review
  • A. The incentive to trade comes from
    countries
  • differing resource endowmentsand,
  • therefore, differing relative costs.
  • B. Trade is based on comparative advantage, not
  • absolute advantage.
  • C. The gain is increased total output and
    lower
  • prices.
  • D. Countries dont tradepeople do

4
The Political Economy of International Tradeand
Trade Restrictions (2)
  • II. Winners and losers
  • A. Exporters. And displaced producers.
  • B. The consumer interest in increased
  • output in strictly economic terms,
  • imports are a benefit, while
  • exports are their necessary cost.

5
The Political Economy of International Tradeand
Trade Restrictions (3)
  • II. C. Why trade restrictions? The political
  • economy of regulation.
  • 1. Producer interests are direct and
    concentrated.
  • 2. Consumer interests are indirect and widely
  • dispersed.
  • 3. Analogy to regulation / deregulation
    issues.
  • 4. Mercantilism and rent seeking.

6
The Political Economy of International Trade
Graphic Analysis (4)
  1. Economics of autarky and embargo
  2. Effects of a tariff on prices
  3. Effects of a quota
  4. Tariffs and the deadweight loss
  5. Arguments for trade restrictions

7
The Political Economy.(5)Arguments for Trade
Restrictions
  • A. National security 1. Imports 2. Exports
  • B. Industrial development
  • 1. Infant industries
  • 2. Strategic trade policy and the
  • learning curve.
  • 3. The perils of import substitution

8
The Political Economy.(6)Arguments for Trade
Restrictions
  • C. Problems over pricing
  • 1. Boycotts and the terms of trade
  • 2. Dumping prelude to monopoly?
  • D. Protect jobs
  • 1. What jobs? What industries?
  • 2. The spread of
    beggar-my-neighbor
  • E. Arguments based on absolute advantage
  • F. Protect the culture and its costs
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