This document contains information about comparative advantage and international trade. It discusses concepts like absolute advantage, opportunity cost, production possibility frontiers, and types of trade barriers like tariffs and quotas. Key examples analyzed include Cuba and Honduras' agricultural production, and a comparison of the labor and capital resources between Honduras and the US to determine which goods each country has a comparative advantage in producing. The text also covers international trade agreements like NAFTA, the EU, and WTO, noting benefits like lower consumer prices and more job opportunities, as well as potential drawbacks like structural unemployment.

1. Bellringer ½ sheet
1. Where was your shirt made?
(Have your neighbor check)
2. Who do you think is the most productive student in
class?
3. Would you need to know how to read to make a t
shirt?
4. Would you need to know how to read to design a
cellphone app?

2. Comparative Advantage Activity

3. Absolute Advantage
Who is the most productive
• Total hours to finish jobs

4. Comparative Advantage
Whoever can do the job with the
lowest opportunity cost

5. Another way of looking at
Comparative Advantage
• Should Jason Terry clean
his own house?

6. Another way of looking at
Comparative Advantage
• Should Lebron James
clean his house?

7. Specialization of labor
• Firms &
countries figure
out more efficient
methods of
production
• Productivity?
• Effect on
concept of
trade?

8. Honduras
• 100 tons of
sugar/year
OR
• 100 tons of
bananas

9. Cuba
• 600 tons of
sugar/year
OR
• 200 tons of
bananas

10. Cuba & Honduras
• Scarcity of farm
land
• Graph PPFs
• Who is more
productive?
• Who has the
comparative
advantage of
trade?
• Why is this
better?
Honduras:
Cuba:
100 tons of sugar/year
OR
100 tons of bananas
600 tons of sugar/year
OR
200 tons of bananas

11. What should happen here?
What should happen here?

12. Who has comparative advantage:
T shirts, financial, medical services,
entertainment, shoes
• Land, labor and capital in Honduras
• GDP per capita: $2,200 / Population: 8 million
• Literacy rate: 85%, 2 universities
• Land, labor and capital in USA
• GDP per capita: $48,000 / Population: 300 million
• Literacy rate: 90%, 800+ universities

13. Trade
• Free trade = absence of
restrictions of
goods/services
• List 3 winners & 3 losers if
all countries had free trade
• Winners:
• Losers:

14. Benefits of FREE TRADE
• Lower prices for consumers
• More competition leading to better
products
• Job opportunities for producers
• Job opportunities in buyer countries
• Opportunity costs?

15. Source: World Bank

16. Types barriers to FREE TRADE
• Tariffs
• Tax on imports
• Result: higher price for consumers, job saving
– Opportunity cost
•
•
•
•
•
Quotas
Limit on imports
Result: high prices, less choice
Examples: Japanese full sized trucks
Lexus, Infinity, etc

17. Other crazy import tariffs
• Japan: 700% tax on rice
• European Union: orange juice (31%), peanut
butter (132%), and tobacco products (350%)
• South Korea: 100% automobiles
• Canada: 28% leather shoes
• United States: 249 % solar panels, Waterproof
shoes with a metal toe cap 37.5 %
• Brazil: 60% tablet computers

18. Drawbacks of FREE TRADE
• Structural unemployment
• Lower union membership
• Ethical problems

19. Let’s consider some systems
• EU, WTO, Trading blocs, NAFTA

20. NAFTA
• 1994-present
• US, Canada, Mexico
• Eliminated thousands
of tariffs
• Expanded to CAFTA
in 2005

21. European Union
• 1954- Present
• Free movement
of goods,
services and
people
• Euro-zone
• Contrast with
US/Latin Am.

22. NAFTA is 20!
1. Does the author think NAFTA has been a success?
Back up your answer with evidence.
2. Which country has gained most from the trade deal?
3. What are the three suggestions for NAFTA in the
future?
4. Which do you think is the most important and explain
why?
5. What 3 types of goods does Mexico have a
comparative advantage in producing?
6. Based on the experience of NAFTA should free trade
be expanded all the way to Argentina and Brazil?

23. Free Trade Assignment
• Letter to John McCain
• 2-3 paragraphs
considering:
Should the US
expand its free trade
zone to include all of
the Western
Hemisphere?
Consider both sides,
but choose the better
one.

24. Trade Balance
•
•
•
•
Value of exports > value of imports
Trade Surplus
Net Exporter
Germany, China, Canada, Norway
•
•
•
•
Value of imports > value of exports
Trade Deficit
Net importer
USA, Mexico, Japan,

25. Balance of payments
• Measure of trade between a country and the rest
of the world
• Current Account:
• Trade, income, transfers
• $$$ out, must come back
• Capital Account
• Financial Account
• Investments
• Foreign Reserves
• Draw on board