princ-ch03-presentation(2010).ppt

1、Interdependence and the Gains from Trade,Economics,P R I N C I P L E S O F,N. Gregory Mankiw,Premium PowerPoint Slides by Ron Cronovich,3,In this chapter, look for the answers to these questions:,Why do people and nations choose to be economically interdependent? How can trade make everyone better o

2、ff? What is absolute advantage? What is comparative advantage? How are these concepts similar? How are they different?,1,Interdependence,Every day you rely on many people from around the world, most of whom youve never met, to provide you with the goods and services you enjoy.,0,INTERDEPENDENCE AND

3、THE GAINS FROM TRADE,3,Interdependence,One of the Ten Principles from Chapter 1:Trade can make everyone better off. We now learn why people and nations choose to be interdependent, and how they can gain from trade.,INTERDEPENDENCE AND THE GAINS FROM TRADE,4,Our Example,Two countries: the U.S. and Ja

4、pan Two goods: computers and wheat One resource: labor, measured in hours We will look at how much of both goods each country produces and consumes if the country chooses to be self-sufficient if it trades with the other country,0,INTERDEPENDENCE AND THE GAINS FROM TRADE,5,Production Possibilities i

5、n the U.S.,The U.S. has 50,000 hours of labor available for production, per month. Producing one computer requires 100 hours of labor. Producing one ton of wheat requires 10 hours of labor.,0,INTERDEPENDENCE AND THE GAINS FROM TRADE,6,The U.S. PPF,0,or 5000 tons of wheat,or any combination along the

6、 PPF.,INTERDEPENDENCE AND THE GAINS FROM TRADE,7,The U.S. Without Trade,Suppose the U.S. uses half its labor to produce each of the two goods.,0,Then it will produce and consume 250 computers and 2500 tons of wheat.,Use the following information to draw Japans PPF. Japan has 30,000 hours of labor av

7、ailable for production, per month. Producing one computer requires 125 hours of labor. Producing one ton of wheat requires 25 hours of labor. Your graph should measure computers on the horizontal axis.,A C T I V E L E A R N I N G 1 Derive Japans PPF,8,INTERDEPENDENCE AND THE GAINS FROM TRADE,9,Japan

8、s PPF,0,or 1200 tons of wheat,or any combination along the PPF.,INTERDEPENDENCE AND THE GAINS FROM TRADE,10,Japan Without Trade,0,Suppose Japan uses half its labor to produce each good.,Then it will produce and consume 120 computers and 600 tons of wheat.,INTERDEPENDENCE AND THE GAINS FROM TRADE,11,

9、Consumption With and Without Trade,Without trade, U.S. consumers get 250 computers and 2500 tons wheat. Japanese consumers get 120 computersand 600 tons wheat. We will compare consumption without trade to consumption with trade. First, we need to see how much of each good is produced and traded by t

10、he two countries.,0,1.Suppose the U.S. produces 3400 tons of wheat. How many computers would the U.S. be able to produce with its remaining labor? Draw the point representing this combination of computers and wheat on the U.S. PPF. 2.Suppose Japan produces 240 computers. How many tons of wheat would

11、 Japan be able to produce with its remaining labor? Draw this point on Japans PPF.,A C T I V E L E A R N I N G 2 Production under trade,12,INTERDEPENDENCE AND THE GAINS FROM TRADE,13,U.S. Production With Trade,Producing 3400 tons of wheat requires 34,000 labor hours.,0,The remaining 16,000 labor hou

12、rs are used to produce 160 computers.,INTERDEPENDENCE AND THE GAINS FROM TRADE,14,Japans Production With Trade,Producing 240 computers requires all of Japans 30,000 labor hours.,0,So, Japan would produce 0 tons of wheat.,INTERDEPENDENCE AND THE GAINS FROM TRADE,15,Basic International Trade Terms,Exp

13、orts: goods produced domestically and sold abroad To export means to sell domestically produced goods abroad. Imports: goods produced abroad and sold domestically To import means to purchase goods produced in other countries.,0,A C T I V E L E A R N I N G 3 Consumption under trade,16,How much of eac

14、h good is consumed in the U.S.? Plot this combination on the U.S. PPF. How much of each good is consumed in Japan? Plot this combination on Japans PPF.,Suppose the U.S. exports 700 tons of wheat to Japan, and imports 110 computers from Japan. (So, Japan imports 700 tons wheat and exports 110 compute

15、rs.),INTERDEPENDENCE AND THE GAINS FROM TRADE,17,U.S. Consumption With Trade,0,INTERDEPENDENCE AND THE GAINS FROM TRADE,18,Japans Consumption With Trade,0,INTERDEPENDENCE AND THE GAINS FROM TRADE,19,Trade Makes Both Countries Better Off,gains from trade,consumption with trade,consumption without tra

16、de,U.S.,0,INTERDEPENDENCE AND THE GAINS FROM TRADE,20,Where Do These Gains Come From?,Absolute advantage: the ability to produce a good using fewer inputs than another producer The U.S. has an absolute advantage in wheat: producing a ton of wheat uses 10 labor hours in the U.S. vs. 25 in Japan. If e

17、ach country has an absolute advantage in one good and specializes in that good, then both countries can gain from trade.,0,INTERDEPENDENCE AND THE GAINS FROM TRADE,21,Where Do These Gains Come From?,Which country has an absolute advantage in computers? Producing one computer requires 125 labor hours

18、 in Japan, but only 100 in the U.S. The U.S. has an absolute advantage in both goods!,0,So why does Japan specialize in computers? Why do both countries gain from trade?,INTERDEPENDENCE AND THE GAINS FROM TRADE,22,Two Measures of the Cost of a Good,Two countries can gain from trade when each special

19、izes in the good it produces at lowest cost. Absolute advantage measures the cost of a good in terms of the inputs required to produce it. Recall: Another measure of cost is opportunity cost. In our example, the opportunity cost of a computer is the amount of wheat that could be produced using the l

20、abor needed to produce one computer.,0,INTERDEPENDENCE AND THE GAINS FROM TRADE,23,Opportunity Cost and Comparative Advantage,Comparative advantage: the ability to produce a good at a lower opportunity cost than another producer Which country has the comparative advantage in computers? To answer thi

21、s, must determine the opp. cost of a computer in each country.,0,INTERDEPENDENCE AND THE GAINS FROM TRADE,24,Opportunity Cost and Comparative Advantage,The opp. cost of a computer is 10 tons of wheat in the U.S., because producing one computer requires 100 labor hours, which instead could produce 10

22、 tons of wheat. 5 tons of wheat in Japan, because producing one computer requires 125 labor hours, which instead could produce 5 tons of wheat. So, Japan has a comparative advantage in computers. Lesson: Absolute advantage is not necessary for comparative advantage!,0,INTERDEPENDENCE AND THE GAINS F

23、ROM TRADE,25,Comparative Advantage and Trade,Gains from trade arise from comparative advantage (differences in opportunity costs). When each country specializes in the good(s) in which it has a comparative advantage, total production in all countries is higher, the worlds “economic pie” is bigger, a

24、nd all countries can gain from trade. The same applies to individual producers (like the farmer and the rancher) specializing in different goods and trading with each other.,0,Argentina and Brazil each have 10,000 hours of labor per month. In Argentina, producing one pound coffee requires 2 hours pr

25、oducing one bottle wine requires 4 hours In Brazil, producing one pound coffee requires 1 hour producing one bottle wine requires 5 hours Which country has an absolute advantage in the production of coffee? Which country has a comparative advantage in the production of wine?,A C T I V E L E A R N I

26、N G 4 Absolute & comparative advantage,26,Brazil has an absolute advantage in coffee: Producing a pound of coffee requires only one labor-hour in Brazil, but two in Argentina. Argentina has a comparative advantage in wine: Argentinas opp. cost of wine is two pounds of coffee, because the four labor-hours required to produce a bottle of wine could instead produce two pounds of coffee. Brazils opp. cost of wine is five pounds of coffee.,A C T I V E L E A R N I N G 4 Answers,27,INTERDEPENDENCE AND THE GAINS FROM TRADE,28,Unanswered Questions.,We made