Macro Chapter 5

1
Macro Chapter 5

• Presentation 1
• Trade surplus, trade deficit, GDP,
  Absolute/Comparative advantage

2
United States and World Trade
Volume and Pattern
Principal U.S. Exports Imports 2005 in
Billions of Dollars
Chemicals Consumer Durables Agricultural
Products Semiconductors Computers Generating
Equipment Automobiles Aircraft Medical Telecommuni
cations
Petroleum Automobiles Household
Appliances Computers Metals Clothing Consumer
Electronics Generating Equipment Semiconductors Te
lecommunications
Source Department of Commerce Data
3
Gross Domestic Product (GDP)

• The total market value of all final goods and
  services produced in a given year

4
Trade Deficit

• Occurs when imports exceed exports
• US has a trade deficit in goods
• The US had a 497.9 billion trade deficit in
  2010 1.8 trillion in exports minus 2.3
  trillion in imports.

5
Trade Surplus

• Occurs when exports exceed imports
• US has a trade surplus in services such as
  transportation, legal, medical and financial
  services
• Trade surplus in services of 526 B in 2010

6
US Trade Balance
7
Trade Data

• numerically, Canada is the biggest trading
  partner (16 of total trade)
• US has the biggest trade deficits to China and
  Mexico trade surplus with Australia

8
Tariffs

• An excise tax on an imported product
• Used to encourage the purchase of domestic goods

9
Multinational Corporations

• Firms that have sizable production and
  distribution activities in other countries
• Ex- Coca-Cola (Atlanta), Nestle (Switzerland)

10
Specialization and Trade

• Specialization and international trade increase
  the productivity of a nations resources and
  allow for greater total output

11
Adam Smith Quote

• It is the maxim of every prudent master of a
  family, never to attempt to make at home what it
  will cost him more to make than to buy.

12
Absolute Advantage

• The ability of one person, company or country to
  produce more of a good or service than others
  using the same amount of resources

13
Comparative Advantage

• A lower opportunity cost than that of your
  competitor
• Give up less than the competition to produce a
  good

14
Comparative Advantage Output Problems

• The following are the amount of cars and bikes
  Mike and Mary can produce in 1 day
• of cars of Bikes
• Mike 4 6
• Mary 2 8

15
Comparative Advantage Input Problems
The table below indicates the number of labor
hours required in Country X and Y to produce one
unit of food or one unit of clothing. Country
Food Clothing X 30 hours 40 hours
Y 10 hours 20 hours