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ECON102: Principles of Macroeconomics

Unit 10: International Trade   *Why do nations trade goods and services with each other?  How do they decide what to export and what to import?  Should nations protect their industries from foreign competition by using tariffs and quotas?  In this unit, we will take a look at some of these questions.

The concept of “trade” is an important element in economics.  As workers, we trade our time and effort for the goods and services our wages will buy.  When we study international trade, the same logic applies: two people will not trade unless they both expect to gain; both sides must see profit, or they will refuse trade.  Finally, people will not sell goods unless they want to buy other goods.  This is true at an individual level and, more generally, for every nation.  By trading with each other, trading partners benefit if they can buy a good or service more cheaply than they can produce it domestically.

Macroeconomics uses accounting and other tools to measure trade and determine the effect that certain changes have on economic activity.  By looking at a country’s trade balance and the rate at which its currency trades, we can begin to understand why the economy is doing what it is doing at a particular point in time. *

Unit 10 Time Advisory
This unit should take approximately 11 hours to complete.

☐    Subunit 10.1: 1 hour

☐    Subunit 10.2: 1 hour

☐    Subunit 10.3: 2 hours

☐    Subunit 10.4: 2 hours

☐    Subunit 10.5: 3 hours

☐    Assessments: 2 hours

Unit10 Learning Outcomes
Upon successful completion of this unit, the student will be able to: - Explain the importance of studying trade. - Describe Adam Smith’s theory of absolute advantage and explain how it is calculated. - Describe the Ricardian model of trade and analyze its implications for trade. - Describe the Heckscher-Ohlin model of trade and analyze its implications for trade. - Identify tariffs and quotas in international trade. - Analyze the effects of tariffs and quotas.

10.1 Introduction to Trade   - Reading: University of Washington: Professor Colin Danby’s Macroeconomics Teaching Notes: “Introduction to Trade Theory” Link: University of Washington: Professor Colin Danby’s Macroeconomics Teaching Notes: “Introduction to Trade Theory” (HTML)

 Instructions: Read these lecture notes to get a brief overview on
trade theory.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

10.2 Adam Smith and Absolute Advantage   - Reading: The Saylor Foundation: Wikipedia’s “Absolute Advantage” Link: The Saylor Foundation: Wikipedia’s “Absolute Advantage” (PDF)

 Instructions: Read this article, which examines Adam Smith’s theory
of absolute advantage.  

 Terms of Use: The article above is released under a [Creative
Commons Attribution-Share-Alike License
3.0](http://creativecommons.org/licenses/by-sa/3.0/).  You can find
the original Wikipedia version of this article
[here](http://en.wikipedia.org/wiki/Absolute_advantage).

10.3 David Ricardo and Comparative Advantage   - Reading: University of Washington: Professor Colin Danby’s Macroeconomics Teaching Notes: “Ricardian Trade Theory” Link: University of Washington: Professor Colin Danby’s Macroeconomics Teaching Notes: “Ricardian Trade Theory” (HTML)

 Instructions: Read these lecture notes to learn about Ricardian
trade theory.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

10.4 Heckscher-Ohlin-Samuelson trade theory   - Reading: University of Washington: Professor Colin Danby’s Macroeconomics Teaching Notes: “Heckscher-Ohlin-Samuelson Trade Theory” Link: University of Washington: Professor Colin Danby’s Macroeconomics Teaching Notes: “Heckscher-Ohlin-Samuelson Trade Theory” (HTML)

 Instructions: Read these lecture notes to learn about
Heckscher-Ohlin-Samuelson trade theory.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

10.5 Commercial Policy   10.5.1 Tariffs   - Reading: University of Washington: Professor Colin Danby’s Macroeconomics Teaching Notes: “Tariffs”

Link: University of Washington: Professor Colin Danby’s
*Macroeconomics Teaching Notes*:
[“Tariffs”](http://faculty.washington.edu/danby/bls324/trade/tariff.html) (HTML)  

 Instructions: Read these lecture notes to learn about tariffs in
trade theory.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

10.5.2 Quotas   - Reading: University of Washington: Professor Colin Danby’s Macroeconomics Teaching Notes: “Quotas” Link: University of Washington: Professor Colin Danby’s Macroeconomics Teaching Notes: “Quotas” (HTML)

 Instructions: Read these lecture notes to learn about quotas in
trade theory.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.
  • Assessment: University of Washington: Professor Colin Danby’s Macroeconomics Teaching Notes: “Trade Quiz”

    Link: University of Washington: Professor Colin Danby’s Macroeconomics Teaching Notes: “Trade Quiz” (HTML)

    Instructions: Complete these interactive practice quizzes to review the material you have learned in this section.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above

  • Assessment: Cengage Learning: William Boyes and Michael Melvin’s Macroeconomics: “Chapter 36: International Trade Restrictions” Link: Cengage Learning: William Boyes and Michael Melvin’s Macroeconomics: “Chapter 36: International Trade Restrictions” (Flash)

    Instructions: Click on the links for “Test 1” and “Test 2” beneath “Chapter 36” on the linked page and complete each assessment.  Once you have selected an answer choice, a note at the bottom of the screen will indicate whether or not your choice was correct.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.