TRADE POLICY BARRIERS VERSUS INSTITUTIONAL TRADE BARRIERS: AN
trade infograph k20 - Federal Reserve Bank of Atlanta › ... › infographics › trade.pdf ·...
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Trade Terminology Production Possibilities Frontier THE FEDERAL RESERVE BANK OF ATLANTA Individuals, businesses, and countries exchange goods and services when the parties involved expect mutual benefits. The graph below represents the trade-offs an economy faces given fixed resources and an economy at full employment. In such an economy, these are the maximum outputs possible given specific inputs (productive resources). IMPORTS OPPORTUNITY COST FACTORS OF PRODUCTION (productive resources) LABOR CAPITAL ENTREPRENEURSHIP SPECIALIZATION Choice Next best alternative The value of the forgone alternative when making a choice Production possibility frontier (PPF) A B C Y X 0 A point at which output is not attainable based on the current production resources Y A point at which resources are not being used efficiently to produce chocolate cakes or chocolate bars X Examples of production combinations at which the production of chocolate cakes and chocolate bars is most efficient A, B, & C Free Trade versus Protectionism Absolute versus Comparative Output per hour of labor Country A Chocolate bars Cakes Country B 20 10 4 5 Absolute advantage The ability to produce a larger amount of a good or service than another producer given the same input Country A has the absolute advantage in producing chocolate bars. Country B has the absolute advantage in producing cake. Opportunity cost Country A 1 chocolate bar 1 cake Country B 1/5 cake 1/2 cake 5 bars 2 bars Country A has the comparative advantage in producing chocolate bars. Country B has the comparative advantage in producing cake. Comparative advantage The ability to produce a good or service at a lower opportunity cost than the other producer Trade Barriers • Allocates resources inefficiently • Discourages innovation • Limits variety of goods and services • Raises prices • Increases structural unemployment • Weakens infant industries CONS Protectionism • Safeguards domestic industries and jobs • Insulates infant industries Free trade • Promotes efficient production • Stimulates economic growth • Increases consumption • Lowers prices PROS Goods and services EXPORTS Goods and services Quotas Limits on the quantity of imports Export Restrictions Self-imposed limits on the quantity of exports Subsidies Payments to the producers of certain goods for export or to producers competing against imports Tariffs Taxes on imports LAND (natural resources) Produce both? Or just one? Learn more about this topic and download a copy of this infographic by visiting frbatlanta.org/education/classroom-tools/infographics Connect with the Atlanta Fed. Trade Why do nations trade? INTERNATIONAL ECONOMICS
Transcript of trade infograph k20 - Federal Reserve Bank of Atlanta › ... › infographics › trade.pdf ·...
Trade Terminology
Production Possibilities Frontier
THE FEDERAL RESERVE BANK OF ATLANTA
Individuals, businesses, and countries exchange goods and services when the parties involved expect mutual benefits.
The graph below represents the trade-offs an economy faces given fixed resources and an economy at full employment. In such an economy, these are the maximum outputs possible
given specific inputs (productive resources).
IMPORTSOPPORTUNITY COSTFACTORS OF PRODUCTION(productive resources)
LABOR
CAPITAL
ENTREPRENEURSHIP
SPECIALIZATION
Choice
Next bestalternative
The value of the forgone alternativewhen making a choice
Production possibilityfrontier (PPF)
A
B
C
Y
X
0A point at which output is not
attainable based on the currentproduction resources
Y
A point at which resources are not being used efficiently to produce chocolate cakes or chocolate bars
X
Examples of production combinations at which the
production of chocolate cakes and chocolate bars is most efficient
A, B, & C
Free Trade versus Protectionism
Absolute versus Comparative
Output per hour of labor
Country A
Chocolate bars Cakes
Country B
20
10
4
5
Absolute advantageThe ability to produce a larger amount of a good or service
than another producer given the same input
Country A has the absolute advantage in producing chocolate bars.Country B has the absolute advantage in producing cake.
Opportunity cost
Country A
1 chocolate bar 1 cake
Country B
1/5 cake
1/2 cake
5 bars
2 bars
Country A has the comparative advantage in producing chocolate bars.Country B has the comparative advantage in producing cake.
Comparative advantageThe ability to produce a good or service at a lower
opportunity cost than the other producer
Trade Barriers
• Allocates resources inefficiently• Discourages innovation • Limits variety of goods and services• Raises prices
• Increases structural unemployment• Weakens infant industries
CONS
Protectionism• Safeguards domestic industries and jobs • Insulates infant industries
Free trade• Promotes efficient production• Stimulates economic growth • Increases consumption• Lowers prices
PROS
Goods and services
EXPORTSGoods and services
QuotasLimits on the quantity of imports
Export Restrictions Self-imposed limits on the
quantity of exports
SubsidiesPayments to the producers of certain goods for export or to producers competing against imports
TariffsTaxes on imports
LAND (natural resources)
Produce both? Or just one?
Learn more about this topic and download a copy of this infographic byvisiting frbatlanta.org/education/classroom-tools/infographicsConnect with the Atlanta Fed.
TradeWhy do nations trade?
INTERNATIONAL ECONOMICS
