Trading With Other Nations Standard 3.2.1

Do Now What is the best trade you ever made. Explain why people trade and what might be the positives/negatives of doing so.

Trade imports: goods bought from other countries for domestic (home) use exports: goods sold to other countries

Focus Question: How does absolute and comparative advantage explain why certain goods or services are produced in a particular nation, region, or locale?

Absolute Advantage: the ability of a country to produce a product with fewer resources than another country. A country with an abs. advantage can produce more output per unit than another country. Specialization: a nation should produce and export a limited assortment of goods for which it is best suited in order to use its resources most efficiently

How does it work?

Comparative Advantage: refers to the ability of a person or country to produce a product at a lower opportunity cost than another person or country.

Oranges could be grown in Michigan, with the use of greenhouses, BUT! it would be very costly and wasteful of Michigan's limited resources. We can then say that Florida has a comparative advantage in oranges, while Michigan has a comparative advantage, because of climate and soil, in the growing of cherries.

Explain which country has the absolute advantage for shoes and clothes? Explain which country has comparative advantage for shoes?

Check for Understanding China has an absolute advantage in the production of both shoes and cloth. It can produce more of both than India India has a comparative advantage in producing shoes, since they only give up 2.5 meters of cloth for each pair, whereas China gives up 4 meters of cloth. What should China and India specialize in?

Mutual Trade Benefits All Parties Comparative advantage leads to gains from trade, including lower prices, higher quality goods or services, and more choices. Money from the sale of goods and services traded can be used to purchase goods and services that cannot be produced efficiently.

Do Now Define Comparative Advantage

Review! How does absolute and comparative advantage explain why certain goods or services are produced in a particular nation, region, or locale? Answer: The decision to produce a particular good or service is dependent on the opportunity costs of available resources.

Restrictions on World Trade & Tax Policy

Focus Question What are the impacts of trade policies on domestic markets and world trade?

Tariff: tax placed on an imported product Revenue Tariff: used to raise government revenue without restricting imports Protective Tariff: protects domestic (home) producers used to raise the cost of imported goods

More restrictions… Import Quota: restriction imposed on the number of units of a particular good that can be brought into the country Embargo: complete restriction on the import or export of a particular good or goods going to or coming from a specific country

What are the impacts of these trade policies on domestic markets and world trade? Trade policies include tariffs, quotas, and other barriers. Trade barriers, in general, protect domestic (home) producers at the expense of consumers. For example, U.S. tariffs on imported sugar have restricted trade in sugar and increased sugar prices for American consumers while protecting U.S. sugar and corn producers.

Focus Question… What are examples of government tax policies with unintended consequences?

Historical Example… Smoot Haley Tariff of 1930: A law passed by U.S. congress that raised tariff levels to the highest in our history Increased taxes on imported goods would allow gov. to help bring people out of poverty during Great Depression Effect: Depression worsened and countries retaliate by taxing our exports A 1939 cartoon on the effect of the Smoot-Hawley tariff on the world.

Modern Day Examples During the 1980’s, our government imposed an excise tax on the sale of yachts to raise money. The consequence was a significant decline in the purchase of yachts which nearly destroyed the yachts building industry… Key Point: All actions have consequences, intentional and unintentional…

Do Now What are some things your local government can do differently or improve upon? (e.g. Eastpointe, Warren, Detroit Etc)

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