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The creation of the North American Free Trade Agreement and the World Trade Organization stepped up the controversy between protectionists and free traders. Protectionists argue that imports should be limited to reduce foreign competition with goods produced in the United States, to remedy balance of trade and balance of payments problems, and to encourage U.S. industries vital to national security and economic welfare. | Chapter 10 Competition in the Global Marketplace: Should We Protect Ourselves from International Trade? Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 10- The Controversy Over International Trade The Protectionist Viewpoint Protect from cheap foreign goods Balance of Trade and Balance of Payments problems Protection of Key and Infant Industries Protection of environment and human rights The Free Trade Viewpoint Free trade promotes international specialization and division of labor Since trade is voluntary, it would not take place unless both parties benefited 10- The Economics of the Global Marketplace How Trade Takes Place Define imports Define exports Buying a good produced abroad We must export in order to import/We must import in order to export 10- Alpha and Omega’s Production and Consumption Possibilities Bread (million loaves per year) Milk (million gallons per year) Bread (million loaves per year) 100 100 100 200 200 150 100 50 A M B N C A1 50 P 50 25 P1 N1 C1 Alpha Omega Milk (million gallons per year) Click 1: Alpha’s consumption possibilities curve Click 2: C1 and vertical and horizontal gridlines Click 3: Omega’s consumption possibilities curve Click 4: P1 and vertical and horizontal gridlines 10- Limits to Terms of Trade Alpha Omega Bread 1 2 Milk 2 1 10- The Principle of Comparative Advantage Comparative Advantage – good the country produces at the lowest opportunity cost Comparative Disadvantage Sources of Comparative Advantage Resource endowments State of technology Buying Goods and Services Produced Abroad $50,000 £75,000 10- 10- Exchange Rates Exchange Rate – the rate at which a person can trade the currency of one country for the currency of another. Appreciation versus Depreciation 10- Foreign Exchange Market Pounds per month Dollars per pound D D S S q r 10- U.S. International Transactions Transaction Type Demand for Foreign . | Chapter 10 Competition in the Global Marketplace: Should We Protect Ourselves from International Trade? Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 10- The Controversy Over International Trade The Protectionist Viewpoint Protect from cheap foreign goods Balance of Trade and Balance of Payments problems Protection of Key and Infant Industries Protection of environment and human rights The Free Trade Viewpoint Free trade promotes international specialization and division of labor Since trade is voluntary, it would not take place unless both parties benefited 10- The Economics of the Global Marketplace How Trade Takes Place Define imports Define exports Buying a good produced abroad We must export in order to import/We must import in order to export 10- Alpha and Omega’s Production and Consumption Possibilities Bread (million loaves per year) Milk (million gallons per year) Bread (million loaves per year) 100 100 100 .
