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Maximizing Trade Benefits between U.S. and Brazil

Explore the comparative advantages of U.S. and Brazil in wheat and coffee production, and discover the gains from trade between the two countries. Learn how trade can benefit both nations by capitalizing on their respective production efficiencies. Delve into the nuances of terms of trade and strategies for maximizing trade benefits.

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Maximizing Trade Benefits between U.S. and Brazil

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  1. International Trade Chapter 24

  2. Chapter 37 Figure 37.1 Production Possibilities, U.S. and Brazil

  3. Chapter 37 Table 37.1 Gains from Trade

  4. In the example • In the U.S. • Each ton of wheat costs one ton of coffee to produce • Each ton of coffee costs one ton of wheat • But in Brazil • Each ton of wheat costs two tons of coffee • Each ton of coffee costs one-half ton of wheat • The U.S. has a comparative advantage in wheat • because wheat only cost us one ton of coffee to produce, but costs Brazil two tons of coffee • Brazil has a comparative advantage in coffee, • because coffee only costs them one-half ton of wheat, but costs us one ton of wheat

  5. Chapter 37 Figure 37.1 Production Possibilities, U.S. and Brazil

  6. Gains from trade I • If we produce wheat it costs us only one ton of coffee • But it would cost Brazil two tons of coffee • U.S. is the low-cost producer of wheat • We benefit if we sell wheat to Brazil at any price above one ton of coffee • Brazil benefits as long as the cost is less than two tons of coffee

  7. Gains from trade II • Brazil is the low-cost producer of coffee • It costs them one-half ton of wheat for every ton of coffee they produce • It would cost us one ton of wheat to grow a ton of coffee in the U.S. • We benefit from trade as long as we pay less than one ton of wheat • Brazil benefits as long as we pay more than one-half ton of wheat for every ton of coffee

  8. Terms of Trade • Any price between 1W = 1C and 1W = 2C is possible • The textbook uses 1W = 1.5C • (or 1C = .75W)

  9. Chapter 37 Figure 37.2 Trade Benefits Both Countries

  10. Chapter37 Figure 37.3 Domestic and World Markets for Aluminum

  11. Chapter 37 Figure 37.4 Canada and the World Market for Aluminum

  12. Chapter 37 Figure 37.5 Equilibrium World Price

  13. Chapter 37 Figure 37.6 Tariffs and Import Quotas

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