International trade
MK U 27
RB pp 20-25
READING
PROTECTIONISM AND FREE TRADE
RB, pp 20-21
Read paragraphs 1 & 2 to explain:
THE COMPARATIVE COST PRINCIPLE
ABSOLUTE / COMPARATIVE ADVANTAGE
(REASONS & EXAMPLES)
COMPARATIVE ADVANTAGE
The idea that countries should specialize in making the
products that they are particularly good at making, and
should import products that other countries are better at
making.
Longman Business English Dictionary
• Comparative advantage is a situation in which a
country, individual, company or region can produce a
good at a lower opportunity cost than a competitor.
• Lower opportunity cost is the ability to produce a
product most efficiently given all the other products that
could be produced.
– Opportunity cost – the cost of an alternative that must
be foregone (sacrificed; either-or).
• Absolute advantage is the ability of a person or a
country to produce a particular good at a lower absolute
cost than another.
http://www.investopedia.com
Collocations from pgs 1 & 2
rai______ living standard
spe______ in the production
c________ advantage ___ producing...
fac______ of production
div_______ of labour
ec_______ of scale
Collocations from pgs 1 & 2
raise living standard
specialize in the production
comparative advantage in producing...
factors of production
division of labour
economies of scale
Read paragraphs 3 & 4 to explain:
PROTECTIONISM AND REASONS FOR
PROTECTIONISM
Reasons for
TRADE LIBERALIZATION (Free trade)
•
•
•
•
•
•
•
a______e/c________e advantage
spe_______n
a_____s to foreign markets
intern. c________n & efficiency
efficient market m_________m
freer m________t of resources
f______m to choose
Reasons for
TRADE LIBERALIZATION
•
•
•
•
•
•
•
absolute/comparative advantage
specialization
access to markets
intern. competition & efficiency
efficient market mechanism
freer movement of resources
freedom to choose
Reasons for
TRADE LIBERALIZATION
• absolute/comparative
advantage
• specialization
• access to markets
• intern. competition &
efficiency
• efficient market
mechanism
• freer movement of
resources
• freedom to choose
Reasons for
PROTECTIONISM
• protect jobs (v____s)
• protect d_______c ind.
• strategic reasons
– i_____t industries
• prevent s_______l
unemployment
• apply political p______e
• protect culture (?)
• raise r______e
• prevent d________g
Reasons for
TRADE LIBERALIZATION
• absolute/comparative
advantage
• specialization
• access to markets
• intern. competition &
efficiency
• efficient market
mechanism
• freer movement of
resources
• freedom to choose
Reasons for
PROTECTIONISM
• protect jobs (votes)
• protect domestic ind.
• strategic reasons
– infant industries
• prevent structural
unemployment
• apply political pressure
• protect culture (?)
• raise revenue
• prevent dumping
Protectionism:
imports restriction methods
Barriers to trade
Read pg. 5 to learn about barriers to trade
Protectionism:
imports restriction methods
Rules
Regulations
Legislation
Voluntary Exports
Restrictions
Exacting standars or
Specifications
Collocations from paragraphs 3, 4 & 5 –
which verbs are missing?
i________ tariffs & quotas / restrictions
p________ strategic / infant industries
a_________ sectors
l____ to structural unemployment
r________ a balance of payment deficit
p_________ against dumping
d_______ or w______ competitors
r________ against restrictions
a_________ economies of scale
s____ a limit to imports
p______ revenue for the government
Collocations from paragraphs 3, 4 & 5
impose tariffs & quotas / restrictions
protect strategic / infant industries
abandon a sector
lead to structural unemployment
reduce a balance of payment deficit
protect against dumping
destroy or weaken competitors
retaliate against restrictions
achieve economies of scale
set a limit to imports
provide revenue for the government
Barriers to free trade: tariffs, quotas, subsidies,
customs duty, import licence,
complicated regulations for documents
TARIFFS
• to impose / set a tariff
• to place a tariff on sth
• to eliminate / lift a tariff
• high/low tariffs
QUOTAS
• to impose / introduce / lift / set quotas
• to increase / raise / reduce a quota
• to comply with / exceed quotas
Barriers to free trade: tariffs, quotas, subsidies,
customs duty, import licence,
complicated regulations for documents
SUBSIDY
• government/state subsidies
• to get/qualify for/receive a subsidy
• to give/grant/pay/provide a subsidy
CUSTOMS DUTY
the customs duties on foreign cars
Read paragraphs 6 & 7 and explain:
ORGANISATIONS PROMOTING FREE TRADE &
THEIR FUNCTION
OPPOSITION TO FREE TRADE
Removing trade barriers
• Organisations set up to encourage the
removal of barriers to free global trade:
– WTO (GATT)
– IMF
– World Bank
• Countries join or face exclusion from
benefits of free world trade
GATT→ WTO
• GATT stands for ...
General Agreement on Tariffs and Trade.
It is an ...
international organization set ....
up in 1947 with the objectives of ....
encouraging international trade, of...
making tariffs the only form of ...
protectionism, and of...
reducing these as much as possible.
The final GATT agreement includes trade in goods,
services...
copyright and investment.
Explain: most favoured nation (MFN) clause
Collocations from paragraphs 6 & 7
g____ favourable conditions
o_____ free trade
c_________ a fall in prices
p________ import substitution
Collocations from paragraphs 6 & 7
grant favourable conditions
oppose free trade
counteract a fall in prices
practice import substitution
Read paragraphs 8 & 9 and explain:
PROBLEMS & FEARS OF DEVELOPING
COUNTRIES (IMF)
IMF:
- lends to countries with balance of
payment problems
- pushes for economic reforms (?)
- reports on policies in member states
Criticisms:
IMF lends money if countries agree to:
- sell their resources cheaply
- cut public spending
→ increases problems of poverty
PROBLEMS & FEARS OF DEVELOPING
COUNTRIES (IMF)
1 need to repay huge d____ - IMF imposed
obligation to export
2 s_______ of the East Asian “Tiger” economies
3 c_______ of the Soviet Union
4 potential ex________ from the t______ blocks
(the EU, NAFTA)
Read paragraphs 8 & 9 to explain:
PROBLEMS & FEARS OF DEVELOPING
COUNTRIES (IMF)
1 need to repay huge debts - IMF imposed
obligation to export
2 success of the East Asian “Tiger” economies
3 collapse of the Soviet Union
4 potential exclusion from the trading blocks (the
EU, NAFTA)
Collocations:
p_____ the interest
r______ the principal
r______ (renew) a loan
r _________ (postpone) repayments
i________ severe conditions
t_______ blocks
l_______the economy
l_______trade barriers
Collocations:
pay the interest
repay the principal
rollover (renew) a loan
reschedule (postpone) repayments
impose severe conditions
trading blocks
liberalize the economy
lower trade barriers
RB, p 21, III – write questions
RB, p 21, III – write questions
What can give a country an absolute or
comparative advantage in goods or services
over other producers?
• Why does the theory of comparative advantage
seem inadequate to explain international trade?
• What is an infant industry?
• What is the advantage of tarrifs for the govt.?
• What is the advantage of quotas over tariffs?
MK, Unit 27, p 132: Free trade &
Exceptions to free trade
→ Vocabulary
Listening 1: Free trade
1 They are s _ _ _ _ _ _ _ _ _, cannot always
e _ _ _ _ _ _ how the real world works & there are
e_________
2 It increases e _ _ _ _ _ _ _ _ - we can all
c _ _ _ _ _ _ more. (Remember: The function of an
economy is to allocate resources amongst unlimited wants.)
3 Developed and d _ _ _ _ _ _ _ _ _ countries
producing computers and c _ _ _ _
4 Workers in a developed country – cannot find a job:
w _ _ _ _ part of the country or no s _ _ _ _ _
5 T _ _ _ _ _ _ _ _ _ process
MK, Unit 27, p 132: Free trade &
Exceptions to free trade
→ Vocabulary
Listening 1: Free trade
1 They are simplified, cannot always explain how the
real world works & there are exceptions
2 It increases efficiency - we can all consume more.
(Remember: The function of an economy is to allocate
limited resources amongst unlimited wants.)
3 Developed and developing countries producing
computers and cloth
4 Workers in a developed country – cannot find a job:
wrong part of the country or no skills
5 Transition process
Listening 2: Exceptions to free trade
1 Other goods and services have a h _ _ _ _ _
v _ _ _ _ a _ _ _ _ → generate higher w _ _ _ _ and
economic g _ _ _ _ _
2 P _ _ _ _ _ _ _ _ _ the new sectors, letting them d _ _
_ _ _ _ and grow until they have a
c _ _ _ _ _ _ _ _ _ _ a _ _ _ _ _ _ _ _ and can
c _ _ _ _ _ _ with other countries
3 They may g _ _ _ _ _ _ _ economies of s _ _ _ _ and
b _ _ _ _ _ _ other parts of the e _ _ _ _ _ by way of
p_______ e____________
4 A _ _ _ _ _ _ _ _ - generates knowledge that goes
into the a _ _ _ _ _ _ _ _ _ industry, electrical e _ _ _
_______
Listening 2: Exceptions to free trade
1 Other goods and services have a higher value
added → generate higher wages and economic
growth.
2 Protecting the new sectors, letting them develop and
grow until they have a comparative advantage and
can compete with other countries.
3 They may generate economies of scale and benefit
other parts of the economy by way of positive
externalities.
4 Aerospace - generates knowledge that goes into the
automobile industry, electrical engineering.
For and against free trade
→ MK, p 134
Vocabulary
Reading
Discussion: For and against free trade
1.
2.
3.
4.
5.
6.
Pick a side (for or against)
Get together with your team
Pick 3 most convincing arguments
Get ready to present your opinion
Organize your talk with phrases →
Be prepared to argue in favour free trade
and against free trade!
Need the following phrases?
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I am sure that...
In my opinion... / I believe / From my point of view
It is only fair / right to admit...
It is difficult to take a firm stand on this, but ...
Let me give you an example ... / If I may illustrate ...
As / because of / since / consequently / therefore
Firstly... Secondly... Thirdly...
I am afraid that ...
Although .... , I have to say ...
Furthermore, ..../ Moreover,....
However,...
Hw: Reading – Education and protection,
MK p 133 + questions 1 & 2