Presentation 1
Trade surplus, trade deficit, GDP,
Absolute/Comparative advantage
Macro Chapter 5
United States and World Trade
Volume and Pattern
Principal U.S. Exports & Imports – 2005
in Billions of Dollars
Exports
$68.6
Chemicals
53.5
Consumer Durables
Agricultural Products 52.9
47.2
Semiconductors
Computers
45.5
Generating Equipment 33.2
Automobiles
30.4
Aircraft
29.1
Medical
27.6
Telecommunications 25.6
Imports
$251.6
Petroleum
123.7
Automobiles
Household Appliances 97.1
93.3
Computers
Metals
83.8
Clothing
79.1
Consumer Electronics 47.3
Generating Equipment 43.1
Semiconductors
37.1
Telecommunications 25.8
Source: Department of Commerce Data
Gross Domestic Product (GDP)
• The total market value of all final
goods and services produced in a
given year
Trade Deficit
• Occurs when imports exceed exports
• **US has a trade deficit in goods
• The US had a $497.9 billion trade deficit in
2010… $1.8 trillion in exports minus $2.3
trillion in imports.
Trade Surplus
• Occurs when exports exceed imports
• ***US has a trade surplus in services such
as transportation, legal, medical and
financial services
• Trade surplus in services of $526 B in
2010
US Trade Balance
Trade Data
• **numerically, Canada is the biggest
trading partner (16% of total trade)
• US has the biggest trade deficits to
China and Mexico… trade surplus
with Australia
Tariffs
• An excise tax on an imported
product
• Used to encourage the
purchase of domestic goods
Multinational Corporations
• Firms that have sizable production and
distribution activities in other countries
• Ex- Coca-Cola (Atlanta), Nestle
(Switzerland)
Specialization and Trade
• Specialization and international
trade increase the productivity of
a nation’s resources and allow for
greater total output
Adam Smith Quote
• “It is the maxim of every prudent master of
a family, never to attempt to make at home
what it will cost him more to make than to
buy.”
Absolute Advantage
• The ability of one person, company or
country to produce more of a good or
service than others using the same
amount of resources
Comparative Advantage
• A lower opportunity cost than that
of your competitor
• Give up less than the competition
to produce a good
Comparative Advantage Output
Problems
The following are the amount of cars and bikes
Mike and Mary can produce in 1 day
# of cars
• Mike
• Mary
4
2
# of Bikes
6
8
Comparative Advantage Input
Problems
The table below indicates the number of labor hours required
in Country X and Y to produce one unit of food or one unit of
clothing.
Country
X
Y
Food
30 hours
10 hours
Clothing
40 hours
20 hours