APPLIED MICRO ECONOMICS: INTERNATIONAL TRADE AND GOVERNMENT Chapter 5 Matakuliah: F0882 - Economic Analysis Tahun: 2009.

APPLIED MICRO ECONOMICS: INTERNATIONAL TRADE AND

GOVERNMENTChapter 5

Matakuliah : F0882 - Economic AnalysisTahun : 2009

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Learning Outcomes• The Nature of International Trade• Comparative Advantage among Nations• Protectionism• Government Control of the Economy• Government Expenditures• Economics Aspects of Taxation• Antitrust Policy

The Nature of International TradeInternational vs. Domestic Trade1. Expanded trading opportunities2. Sovereign nations3. Exchange rate

The Sources of International Trade In Goods and Services

1. Diversity in Natural Resources2. Differences in Tastes3. Differences in Cost

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Comparative Advantage Illustrated

With Many Commodities, There Is a Spectrum of Comparative Advantages

Triangular Trade Benefits All

Protectionism1. Supply and Demand Analysis of Trade and Tariffs

Free Trade vs. No Trade, Trade Barriers, The Economic Cost of Tariffs

2. Tariffs create economics inefficiency. When tarrifs are imposed, the economic loss to consumers exceeds the revenue gained by the government plus the extra profits earned by producers.

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Effect of a Tariff

Economic Cost of a Tariff

Government Taxation and Expenditure

The Tools of Government Policy1. Taxes2. Expenditures3. Regulations.

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Government’s Share of the Economy Has Grown Sharply

Chapter 16 Figure 16-1

Government Spending Is Highest in High-Income Lands, 1999

The Functions of Government1. Improving Economic efficiency2. Reducing economic inequality3. Stabilizing the economy through macroeconomic

policies4. Conducting international economic policy.

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Antitrust Policy