Transcript Chapter 37 - International Trade

“Are these vehicles made in the U.S. or overseas?
Toyota Camry and Toyota Tundra
Honda Accord and Honda Odyssey Minivan
BMW Z4 Roadster & BMWX5 SUV
Mercedes-Benz-M-Class
Toyota Corolla
Subaru Legacy
Nissan Maxima
Hyundai Sonata and Elantra
Chrysler Crossfire
Dodge Ram
Plymouth voyager
Chrysler PT Cruiser
Ford Jaguar
Pontiac Firebird
Chevrolet Lumina
Mercury Capri
Chrysler Crossfire
Chrysler 300
Buy
American?
Chrysler Firepower
Chrysler 300
Are You Really Buying American?
Toyota Camry and Tundra – U.S.A. (California and Texas)
Honda Accord and Honda Odyssey Minivan – U.S.A. (Ohio)
BMWX4 Roadster and BMWX5 SUV – U.S.A. (South Carolina)
Mercedes-Benz-M-Class – U.S.A. (Alabama)
Toyota Corolla – U.S.A. (California)
Subaru Legacy – U.S.A. (Indiana)
Nissan Maxima – U.S.A. (Tennessee)
Hyundai Sonata & Elantra – U.S.A. (Alabama)
Chrysler 300
Concept car
Dodge Ram – Mexico
Plymouth Voyager – Canada
Chrysler PT Cruiser – Mexico
Ford Jaguar – England
Pontiac Firebird - Canada
Chevy Lumina & Impala - Canada
Mercury Capri - Australia
Chrysler Crossfire – Germany
Chrysler 300 - Canada
All the above cars with foreign nameplates are made in the U.S.A.; those with
domestic nameplates are made overseas.
This competition gives U.S. consumers higher quality, more choices, and lower
prices. Globalization has blurred national auto identities. Chrysler was acquired
by Daimler Benz. Daimler Benz builds Mercedes SUVs in Vance Alabama & owns
a controlling stake in Mitsubishi and 10% of Hyundai Motor. GM owns Saab and
has stakes in Isuzu, Suzuki, Subaru, Fiat & Daewoo. Ford owns Mazda, Volvo,
Jaguar, Land Rover, & Aston Martin.
All-World Car
[parts from 15 countries]
Ford Escort
Switzerland may get the inputs to make the
speedometer and gears from several countries.
Japan – “Land of the $30 pizzas, $30 lipstick, $50
melons, $100 jeans and $4,500 two-bedroom apts.”
Japan has been a closed economy[fewer choices, higher prices]
Item
N.Y.
Tokyo
Shock Absorbers
Alternator
Watermelon
Cup of coffee
Cab to airport
Stamp
Gallon of gasoline
Newspaper
Movie Ticket
$228
$120
$5
$1
$20
.37
$1.85
.50
$14
$605
$600
$50
$7
$200
.79
$5.00
$1.00
$20
The Japanese paid $28 billion
per year in higher prices for
rice because they would not
buy from U.S. rice farmers.
Japanese consumers pay
$600,000 in higher prices
for each job protected.
We have 550 cars per 1,000; Japan has only 240 per 1000 inhabitants.
Japanese cameras are more expensive in Tokyo than in New York.
In Tokyo, you have to have a sizable inheritance to be able to afford a house.
Their national debt is $31,000 per capita, compared to $24,500 in the U.S.
Japan has had a decade-long economic tailspin, even with in. rates of .15 of 1%.
JUST BECAUSE YOU CAN
PRODUCE IT, DOESN’T
ALWAYS MEAN YOU
SHOULD!!!!
Cleaning lady can clean
house in 7 hours
I can clean house in 5
hours.
http://www.youtube.com/watch?
v=38hvvAzgXZY
Comparative Advantage
• A nation should specialize in producing goods in which it
has a comparative advantage: ability to produce the good at
a lower opportunity cost.
Example:
:
Cheese
Wine
Spain:
2 pounds
2 Cases
France
2 pounds
6 Cases
Who should produce cheese, who
should produce wine?
USA
Russia
• Caviar- 6
• Wheat 3
• Caviar 16
• Wheat 4
Exchange Rates
GLOBAL PERSPECTIVE
Foreign Currency per U.S. Dollar
$1 will buy
EXCHANGE RATES:
47.68 Indian rupee
.63 British pounds
1.48 Canadian dollars
10.91 Mexican pesos
1.36 Swiss francs
.93 European euros
119 Japanese yen
1,237 South Korean won
8.54 Swedish krona
Types of Exchange Rate
Systems
Fixed Exchange-Rate
Systems
• A currency system in
which governments try
to keep the values of
their currencies constant
against one another is
called a fixed exchangerate system.
Flexible Exchange-Rate
Systems
• Flexible exchange-rate
systems allow the
exchange rate to be
determined by supply
and demand.
15
Currency Terms
• Appreciation: Currency is increasing
in demand (stronger dollar)
– U.S. Currency will appreciate when more
foreigners: travel to the U.S., buy more
U.S. goods or services, or buy the U.S.
dollar to invest in bonds
Currency Terms
Depreciation: Currency is decreasing
in demand (weaker dollar) Being
SUPPLIED in exchange for other
currency.
U.S. Currency will depreciate when fewer
foreigners: travel to the U.S., buy fewer
U.S. goods or services, or sell the U.S.
dollar to invest in their own bonds
The equilibrium rate is the rate at which
currency of one nation can be exchanged
for the currency of another nation.
At this
rate,
$1 will
buy
100
Dollar Price of Yen
Sy
$.01
Dy
Qe (1)
Quantity of yen
What might cause this exchange rate
to change?
Suppose incomes rise in the U.S. due
to an economic boom. Consumers will
be willing and able to buy more U.S.
and Japanese goods.
U.S. Economy
AD2
AD1
YR
Y*
AS
An increase in U.S. demand for
Japanese goods will increase the
demand for yen and raise the dollar
price for yen (how much each yen
cost).
S
Price of
$.05
$.01
D
y
Dy2
D
y
Quantity of
When the dollar price of yen increases,
we say that the dollar has depreciated
(it takes more dollars to buy a single
yen).
Thus the international value of the
dollar
D1 has
S
Ddeclined.
2
Price of
$.05
$.01
D
Quantity of
A
Since the value of the yen has increased,
the price of Japanese goods will become
more expensive to Americans.
The result will be that American consumers
will buy less Japanese goods and more
American goods. This will cause a
recessionary trend in the Japanese
economy.
Japanese Economy
AD1
AD2
YR
Y*
AS
A decrease in the dollar price of yen is
called appreciation of the dollar. The
international value of the dollar has
increased.
Since it takes fewer dollars to buy a yen the
price of Japanese goods become cheaper to
S
y
Price of
Americans.
$.01
$.005
A
Dy2
Quantity of
Dy
Appreciation/Depreciation Practice Quiz 1
1. If more Thai bahts are required to buy a dollar,
then the baht has (appreciated/depreciated), &
Thai exports to the U.S. should (increase/decrease).
2. If Latvia’s demand for U.S. Fuzzy Wuzzies decrease,
then Latvia’s Lat will (apprec/deprec) & Latvia’s
imports from the U.S. will (increase/decrease).
3. If interest rates are decreasing faster in S.Korea[4%]
than in Cuba[8%], then the Korean won will (appr/depr)
& Korea’s exports to Cuba will (increase/decrease).
4. If Malaysia’s price level is decreasing faster than that of Brazil,
the Malaysian ringgit will (apprec/deprec) & Malaysia’s exports
to Brazil will (increase/decrease).
5. If growth rate is less rapid in Djibouti than in Swaiziland,
then the Djibouti bouti will (appreciate/depreciate) and
Djibouti’s exports will (increase/decrease).
6. If the Euro price of the S. Korean won decreases, the Euro has
(apprec/deprec) & European exports to Korea will (incr/decr).
7. If interest rates are increasing faster in Zambia than in Spain,
the Zambian Kwachi will (appreciate /depreciate) and Zambia’s
imports from Spain will (increase/decrease).