International Trade
Class 10
The production possibilities frontier
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Australia can produce either 100 Agricultural products or
50 electronic products
Malaysia can produce either 40 agricultural products or
50 electronic products.
World Output
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The need to specialize!
When countries specialize world output increases.
Comparative advantage.
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The ability of a country to price a good at a lower
opportunity cost than another country.
Absolute Advantage.
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The ability of a country to produce a good using a fewer
resources than another country.
Free trade vs Fair Trade
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Free Trade – The flow of good and services between
countries without restrictions.
Fair Trade – a county should only reduce its barriers to
entry if the other country does not have some sort of
“unfair competitive” advantage. And also provided that
the other country also reduces its trade barriers.
Type of protections
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Embargo
Tariff
Quota
Common arguments for protection
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The infant industry argument
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National Security argument.
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A nation should not be dependent on other countries for
defense.
Employment argument.
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New domestic industries need protection because it is not yet
ready to compete.
Job increases in protected industries.
Cheap foreign labor argument.
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Other countries have cheaper labour, it is difficult to compete.
Free Trade Agreements
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ASEAN – Association of South Eastern Asian Nations
EEC – European Economic Community
NAFTA – North American Free Trade Agreement.
APEC – Asian Pacific Economic Cooperation.
Supply and Demand for foreign exchange.
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When the SL Rupee is low or depreciates.
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Sri-Lankan goods and services will cost foreign consumers less.
Foreigners will buy more SL products.
For Sri-Lankans foreign products become more expensive.
When the SL rupee is high or appreciates.
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SL goods will cost foreign consumers more.
Foreigners will buy less SL products
Sri-Lankans will buy more foreign products.
4 shifts in supply and demand of a
currency.
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Taste and Preference.
Relative Incomes
Relative Price levels
Relative Real Interest Rates
Depreciation – A fall in the price of one currency relative
to another
Appreciate – A rise in the price of one currency relative
to another.
THANK YOU!!!
THE
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Well almost 
END!!!!!!