2.7. Free Trade ( Final Thoughts)

1. Put your phone in your bag!

PUT YOUR
PHONE IN
YOUR BAG!
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

2.

3.

DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

4. The Button Capital of the World

THE BUTTON CAPITAL OF THE WORLD
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

5. The Button Capital of the World

THE BUTTON
CAPITAL OF THE
WORLD
Yiwu City in China
makes about 60
percent of the world’s
buttons
The same town
produces 80 percent
of the world’s zippers
What do you think
makes this possible or
efficient?
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

6.

Week #1: Foundations: Incentives & Trade-offs
Week #2: Margins & Gains from Trade
Week #3: Exchange & Transaction Costs
Week #4: Firms, Profits & Income
Week #5:Value, Wealth & Sources of Progress
Week #6: Market Forces & Unintended Effects
TOPIC OF THE WEEK:
Week #7: Institutions that Support Progress
Week #8: Midterm Exam
Week #9: Macro Stability & Policy
Week #10:Trade & Part 3
Week #11: Government’s Basic Roles
Week #12: Political Economy & Rules
Week #13: Government Support Programs
Week #14: Planning & Competition
Week #15: Final Exam

7. Free Trade

FREE TRADE
ELEMENT 2.7

8. Review

REVIEW
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

9. Money functions

- medium of exchange
Three functions:
- store of value
- unit of account
MONEY
FUNCTIONS
Stable money makes contracts and
savings possible
Unstable money blocks long term deals

10. Inflation

INFLATION
General rise in prices measured by CPI
Inflation cuts purchasing power of income
Not a few items, a broad basket
Quick check: CPI up 10 percent, real wage falls

11. Money and inflation link

Money growth above output
growth leads to inflation
MONEY AND
INFLATION
LINK
money > output —› inflation
Slow, steady money growth stabilizes
prices
Central bank sets trend money
supply

12. Rolls Royce and tax wedges

ROLLS ROYCE AND
TAX WEDGES
At 98 percent top rate, 100k
car net cost was ~2k
After rate cut, net cost rose
and demand fell
Tax design changes choices
quickly
Additional: travel, offices, perks
as substitutes

13. Free Trade

FREE TRADE
ELEMENT 2.7

14. Learning Objectives

LEARNING OBJECTIVES
Understand why trade raises living standards
See how specialization makes countries richer
Learn how scale economies make goods cheaper
See how variety and competition help consumers

15. Why Trade matters

WHY TRADE
MATTERS
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

16. Because it Increases world Output

BECAUSE IT
INCREASES
WORLD
OUTPUT
Countries produce what they do well
Resources differ across countries
Trade enables specialization
Total world output rises

17. Specialization Examples

SPECIALIZATION
EXAMPLES
Brazil, Colombia:
coffee
Moldova, Georgia:
fruits
Canada, Australia:
crops, beef
Japan: electronics,
cars

18.

19. Economies of Scale

The bigger production, the lower per unit cost
gets
ECONOMIES
OF SCALE
Small domestic markets limit scale
Trade opens global markets
Costs per unit fall

20. Airplane Example

Jet design costs billions
No country alone buys enough planes
Trade allows Boeing/Airbus to reach global buyers
Cheaper flights for all
AIRPLANE EXAMPLE

21. The Button Capital of the World

THE BUTTON
CAPITAL OF THE
WORLD
Extreme specialization
reduces costs
Scale: factories run 24/7,
huge output lowers price
per unit
Hundreds of small
suppliers cluster
together
This works only because
trade is open and
shipping is cheap
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

22. Variety and Competition

VARIETY AND COMPETITION
1
Trade expands
consumer
choices
2
Foreign
competition
improves
domestic quality
3
Costs fall with
competition
4
Consumers gain
the most

23. Why Restrictions Exist

WHY
RESTRICTIONS
EXIST

24. Government Trade Restrictions

GOVERNMENT
TRADE
RESTRICTIONS
Tariffs: taxes on
imports
Quotas limit import
volume
Exchange controls
affect currency
Import regulations
raise costs

25. Case: Uzbekistan vs Korea

CASE:
UZBEKISTAN
VS KOREA
Uzbekistan average tariffs
roughly 7–8 percent
Korea average tariff
around 8 percent
(higher for agriculture)
Low average tariff does
not automatically mean
open trade
Real barriers often come
from non-tariff
measures and customs
procedures

26.

DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

27. Case: Georgia Strategy

CASE:
GEORGIA
STRATEGY
Tariffs: 0, 5, 12
percent (avr:
2%)
90 percent of
goods zero tariff
FTAs with EU

28. Modern Restrictions

MODERN
RESTRICTIONS

29. Bans and Embargoes

BANS AND
EMBARGOES
Political
reasons for bans
Sanctions on
Russia
Russia bans
Western goods
Restrictions hurt
both sides

30. Job Misconceptions

JOB MISCONCEPTIONS
People fear job losses
Jobs are a cost
Value creation matters
more
Free trade reallocates
labor

31. Institutions and Trade

INSTITUTIONS AND TRADE
Free trade works
with strong
institutions
Economic
Freedom Index
measures policy
quality
Freer economies
grow faster
Trade plus
stability boosts
prosperity

32.

33. Summary

Free trade increases output and
SUMMARY
variety
Specialization uses resources
well
Scale economies reduce costs
Restrictions harm consumers
Stable rules plus open trade
drive growth

34. Any questions?

ANY QUESTIONS?
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

35. Thanks

THANKS
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS