Reflection and Application Report
b408
TheLong-TermEffectsofComparativeandAbsoluteAdvantage.pptxAdvantages and You
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| Comparative Advantage | Absolute Advantage |
| Ability of an individual to produce specific goods or services with lower OC compared to another | Ability of an individual to produce more of a good or service using the same amount of resources as another individual |
| Leads To | |
| Trade between individuals and their respective low OC goods or services | Specialization in one good or service which can be traded for large gain. |
| Example | |
| can make 20 Waffles or 15 Pancakes. While can make 30 Waffles or 20 Pancakes. Meaning the OCs for is $1.33 for Waffles and $0.75 for Pancakes and has OCs of $1.50 for Waffles and $0.67 for Pancakes. So has a Comparative Advantage in Pancakes compared to ,even though can’t produce as many. | can make 20 Waffles or they can make 15 Pancakes. While can make 15 Waffles or 20 Pancakes. Meaning has an Absolute Advantage in Waffles and has an Absolute Advantage in Pancakes. |
| Graphical Representation | |
5 10 15 20
0 5 10 15 20
Pancakes
Waffles
5 10 15 20 25
0 5 10 15 20 25 30
Pancakes
Waffles
“Comparative advantage: The ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another.”
“Absolute advantage: The capability to produce more of a given product using less of a given resource than a competing entity.”
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Protecting Domestic Industry
When domestic industry doesn’t have the advantage the country can shield it using an import tariff, this action is Protectionism. A country can then drive the OC of a foreign good or service higher. In turn, removing the incentive to export while also protecting domestic interests.
Example:
Protectionism: “the theory or practice of shielding a countries domestic industries from foreign competition by taxing imports”
Tariff: “a tax or duty to be paid on a particular class of imports or exports”
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The long-term effect of protecting domestic industry
| Pros | Cons |
| Protects domestic jobs and industry | Limits product choices for consumers |
| Benefits the busines and the government | Forces consumers to pay more |
| “Security”? | Leads to eventual decrease in product quality and will be more expensive than foreign goods |
| Helps protect new industry(Infant Industry) from direct competition early on | An Infant Industry might need protection indefinitely costing the government perpetually |
Some economists and policy makers feel the need for protectionism for a nations economy. Although it is commonly thought that the long-term damage of protectionism could be severe, potentially leading to a global recession. In 1996, import protection cost US consumers roughly $223,400,000,000.
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Works Cited
Lumen “Introduction to International Trade”
https://courses.lumenlearning.com/boundless-economics/chapter/introduction-to-international-trade/
PowerPoint “Chapter 2 Economic Environment” by Professor Li
Slides: 5, 6, 7, 13, 14, 22, 23
Focus Economics “The Economic Effects of Trade Protectionism”
Business Insider “Trump’s new tariff proposal could put the economy on the path to 'global recession’”
https://www.businessinsider.com/trump-trade-policy-lead-to-global-recession-2016-12
..
Images
Slide 1:
Globe: https://thumbs.dreamstime.com/b/happy-smiling-cartoon-earth-clean-stylized-vector-image-peaceful-happy-cartoon-planet-earth-smiling-wide-isolated-white-121283640.jpg
Space Background: https://weheartit.com/entry/263241675
Slide 2:
Gray Cat: https://www.kindpng.com/imgv/hJRiJwT_cat-kawaii-tierno-galleta-galletita-cookie-cartoon-chibi/
White Cat: https://www.pinterest.com/pin/742812532283722294/
Slide 3:
Give Money: https://www.pinterest.com/pin/361343570072264094/
Slide 4:
Slide 5:
Moon Walk: https://wallpaperaccess.com/cartoon-space
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