Trade

Gains from trade

• Getting things you don’t have i.e. Oil, gas
• Comparative advantage (do what you are best at)
• Product Differentiation
• Economies of scale in production
• Efficient investment (when capital flows are free)
• International Co-operation (peace and stability)
 Comparative Advantage
• The Production Possibility Frontier
The description of the best possible combinations of two goods to
produce using all of the available resources.
Shows the trade-off between more of one good in terms of the other.
• Opportunity Cost
The opportunity cost of an activity is the value of the resources used in
that activity when they are used in their next best alternative.
The slope of the Production Possibility Frontier measures the opportunity
cost of producing one good in terms of the amount of the other good
foregone.
• Comparative Advantage
The person with the lowest opportunity cost of an activity has the
comparative advantage at that activity.
This means that the person with the comparative advantage can produce
the activity by giving up the smallest amount of the alternative activity.
Comparative Advantage
Production Possibility Frontier
Opportunity Costs
 Arguments against Free trade
• Infant Industries
Protect newer industries to allow them to get
established before coming up against strong
international competitors.
• Unfair competition
Dumping, subsidies, undervalued currencies.
• Strategic Industries
military, high-tech, utilities, food etc
Things to consider:
Balance of Payments
 Trading Blocks
• EU (Euro zone)
• OPEC
• NAFTA
• APEC