IEP-Chapter 1-1.ppt

ImportForeigntrade(fromthepointofviewofsinglecountry)B)ExportandImportImportsaregoodsandservicespurchasedfromforeignsources.E.g.TheU.S.importsover$1trillionworthofgoodsandservices.Totalimportsrepresent12%oftotalGDP.Exportsaregoodsandservicessoldtoforeignbuyers.E.g.Exportswerejustunder$700billionin2000.Exportsaccountforabout11%oftotaloutput,A)Measurementa)Volume&Valueb)TradeBalanceImportsandexportsareseldomequal.(X=Export,M=Import),Thetradebalanceisthedifferencebetweenexportsandimports.nFavorablebalance(surplus):X-M0nTradesurplustheamountbywhichthevalueofexportsexceedsthevalueofimportsinagiventimeperiod.nUnfavorablebalance(deficit):X-M0nTradedeficittheamountbywhichthevalueofimportsexceedsthevalueofexportsinagiventimeperiodAnyimbalanceintradeintheworldmustbeoffsetbyreversebalanceselsewhereintheworld.,8.BenefitsofInternationalTrade1)Cheapergoods,2)Greatervarietywhengoodscomefrommorecountries,3)Widermarketwithincreasingnumberoftradingpartners,4)Growthofeconomy.,9.Absoluteadvantage,comparativeadvantage&tradebalanceAbsoluteadvantage:situationthatexistswhenonlyonecountrycanproduceacertainitem,orcanproduceitmuchmoreefficientlythananyothercountry.Comparativeadvantage:situationthatexistswhenacountrycanproduceaproductorprovideacertainserviceatmuchlowercostthananyothercountry.(Note:AskthestudentstolookatthetablesonP3P5whenexplainingthesetwoterms),Tradebalance:thedifferencebetweenthevalueofmerchandise