Module 18: International Trade
Section outline
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We live in a global marketplace. The food on your table might include fresh fruit from Chile, cheese from France, and bottled water from Scotland. Your wireless phone might have been made in Taiwan or Korea. The clothes you wear might be designed in Italy and manufactured in China. We are all linked by international trade, and the volume of that trade has grown dramatically in the last few decades. This chapter will focus on the impact of absolute and comparative advantage, international trade, and intra-industry trading.
Upon completion of this module, you will be able to:
- Define absolute advantage, comparative advantage, and opportunity costs
- Explain the gains of trade created when a country specializes
- Show the relationship between production costs and comparative advantage
- Identify situations of mutually beneficial trade
- Identify trade benefits by considering opportunity costs
- Identify at least two advantages of intra-industry trading
- Explain the relationship between economies of scale and intra-industry trade
- Explain tariffs as barriers to trade
- Identify at least two benefits of reducing barriers to international trade
To achieve these objectives: [Edit these items to match your resources and activities.]
- Read the Module 18 Introduction
- Read Chapter 18 in the course textbook, Microeconomics.
- Complete Module 18 Discussion Forum.
- Complete Module 18 Quiz.
- For course instructors, list any other reading assignments here. [Include all reading assignments here that are outside of Moodle. Be as
concise as possible. More information can be included in the
third-party section below, if necessary.]
- Complete the [specific activities in the module. Include all in the order you want them completed.]
Module Pressbooks Resources and Activities
You will find the following resources and activities in this module at the Pressbooks website. Click on the links below to access or complete each item.
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Students mustMark as done
Chapter 18 of Introduction to Microeconomics
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Students mustMark as done
Module 18 In Group Class Activity (hide from students)
Course SLO 1: Identify the basic economic principles that serve as the foundation of economic analysis
Course SLO 3: Analyze the economic impact of government regulation, price setting, and taxes on consumers and producers
Course SLO 5: Understand how international trade can improve the well-being of the society
Module SLO: 18.1.1 – Define absolute advantage, comparative advantage, and opportunity costs;
Module SLO: 18.1.2 – Explain the gains of trade created when a country specializes
Section 1 of the course textbook introduces absolute and comparative advantage. The distinction between these two is that absolute advantage indicates one country’s ability to produce goods using fewer resources than another, while comparative advantage indicates that one country can produce a good with a lower opportunity cost. For this discussion, your task is to:
- Develop
and describe two scenarios where two countries are making two products or taking two different actions:
- In the first scenario, describe a situation where one player has absolute advantage in two goods or actions.
- In the second scenario, describe a situation where each player has an absolute advantage in one of the goods, while the other player has the absolute advantage in the other
- Explain how in each case the players in their scenario become better off by trading.
Hint: Review comparative and absolute advantage in this video:
Instructor Notes:
As we consider absolute and comparative advantage, students should see that you can only have the comparative advantage for one of the goods or actions. Consider professional athletes in two athletic events. If I were to race Usain Bolt, I would lose in either a sprint or a distance event, but there is a way to allocate Bolt and myself so that we can win a medal in the Olympics. When we have the absolute advantage in only one good, it is a little more straightforward since we can see which good or action we are better at taking. The gains from trade will stem from opportunity cost, but also comes down to the system as a whole having a better outcome - that is, gains from trade.
- Develop
and describe two scenarios where two countries are making two products or taking two different actions:
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