Import
-to buy goods or services from foreign sellers
-will do when foreign products are cheaper than their Canadian-made equivalents
Export
-sell goods or services to foreign buyers
-when they can get a better price than if they just sold them in Canada
-many businesses find more people willing to pay a high price for their products when they supply them to the global market
Comparative and International Trade
-comparative advantage drives international trade
-Canadians export goods where their opportunity costs are low and to import goods for which their opportunity costs are high
-both sides gain when trade is driven by comparative advantage
Trade Costs
-extra costs incurred as a result of buying or selling internationally,rather than domestically
-opportunity cost principle reminds you to consider full debt of costs
-cost-benefit principle says the trade is only worthwhile if the benefit is greater than the cost,should only import a good if the price you can get it for from another country is lower than local price
Factors that Shape Comparative Advantage
Abundant Inputs
-take advantage of what you have to get what you want
-ex.Canada has ample forests, export wood
-ex.Saudi Arabias oil
-relative abundance of inputs->whether you have more or less labour relative to capital,land or sunshine than trading partners
-the MORE trading partners differ, the LARGER the gains of trade will be
Factors that Shape Comparative Advantage
Specialized Skills
-unique skills,production methods, or expertise can be an important source of comparative advantage
-ex. Switzerland watches, worlds best watch makers
Factors that Shape Comparative Advantage
Mass Production
-when producing millions of a product, there is the opportunity to invest in creating incredibly specialized production lines that are much more efficient
-lower opportunity costs for to benefits of mass production can be another enduring source of comparative advantage,particularly for large producers
-ex.japan car making
World supply
-total quantity of a product produced by all manufacturers in the world at each price
World Demand
-total quantity of a product demanded across all buyers of said product at each price
World Price
-Price that a product sells for in the global market
-price consumers pay to buy imported products and the price producers can get for selling products
Price-takers
Take the world price as it is given
Domestic demand Curve
-shows a quantity of a good that all domestic consumers added together plan to buy, at each price
Domestic Supply Curve
-Shows the quantity that all domestic suppliers together plan to sell at each price
Evaluate How Imports Shape Domestic Markets
1.What will price of traded good be
->for traded goods price = world price
2. At new price, what quantities will be demanded and supplied by domestic buyers and sellers
3.What quantity will be traded
->when goods are traded internationally, there can be a large gap between quantity demanded and quantity supplied
———>imports fill the gap
-imports lead to lower prices, less domestic production,more domestic consumption
Imports Raise Economic Surplus
-domestic price decreases
-quantity supplied decreases
-quantity demanded increases
-consumer surplus increases a lot
-producer surplus decreases a bit
-increase in total surplus
-imports is the triangle below the supply curve and below the demand curve
Export effects
-exports lead to higher prices
-more domestic production
-less domestic consumption
Evaluate How Exports Shape Domestic Markets
1.What will price of traded good be
->for traded goods, price =world price
2. At new price, what quantities will be demanded and supplied by domestic buyers and sellers
3.What quantity will be traded
Exports raise economic surplus
-increase domestic price
-quantity supplied increases
-quantity demanded decreases
-decrease in consumer surplus
-increase in producer surplus
-increase in total surplus
-triangle above supply and demand curve and below world price
Arguments for limiting international trade
1.National Security Requires that we import goods ourselves
-International trade makes countries more reliable on one another,which may not be a good thing if they don’t have the other countries best interests at heart
-can be cited by industries with only a tenuous connection to actual national security
-sometimes trade limitations will undermine national security
Arguments for limiting international trade
Protection can help infant industries develop
-govts can help create new industries by shielding fledging businesses from international competition
-as a counter argument, infant industries often fail to grow up
Arguments for limiting international trade
Anti-dumping Laws Prevent Unfair Competition
-trying to prevent foreign companies from temporarily charging extremely low prices “dumping” their goods on Canadian market so that they can drive Canadian competitors out of business
Arguments for limiting international trade
Enforcing Minimum Standards
-businesses must meet certain standards
-standards drive up costs
-trade provides a way to get around social agreements
-opponents fear that restricting trade with low-income countries will increase poverty
Arguments for limiting international trade
Saving Jobs
-greater openness to trade leads those firms that lack a comparative advantage to shrink and lay off workers
Tools of Trade Policy
1.the market->compete to produce the best goods at the lowest price
2.forced to compete in the political marketplace
