Lead off 5/1 Should we buy things from other countries? Why or why not? Should the government do things to discourage/prohibit us from buying things from other countries? Why or why not?

International Economics

I. International Trade Distribution of Resources and Specialization Resources are not evenly distributed Countries tend to specialize based on what resources are available Trade for everything else Absolute vs Comparative Advantage Absolute Advantage – one country can produce more than another country Comparative Advantage – one country can produce at less opportunity cost Explains why a country would trade even if it has absolute advantage in both items Effects on National Economies Benefits of Free Trade

I. International Trade Distribution of Resources and Specialization Absolute vs Comparative Advantage Effects on National Economies Exports (going out) – increased demand (higher prices but more jobs) Imports (coming in) – increased supply (lower prices) Employment – jobs will shift toward what a country’s specialty is Benefits of Free Trade Higher productivity Lower prices Increased standard of living

II. Trade Barriers Types Impact Reasons for Protectionism Quota – limit on the number of exports Dumping – selling exports at lower prices than domestically Tariff – tax on imports Revenue – low; in order to make money for the government Protective – high; increase prices so that people don’t buy the import Voluntary Export Reduction – country chooses to limit an export to avoid tariff or quota Embargo - law cutting off all trade with a country Informal restrictions (licensing, regulations, health and safety requirements) Impact Reasons for Protectionism

Reasons for Protectionism (and free trade response) Types Impact Higher prices Trade wars – restrictions from one country met with restrictions from another Reasons for Protectionism (and free trade response) Protectionism – use of trade barriers to protect a country’s economy Free trade – no barriers Protect jobs – lack of foreign competition could keep businesses from having to lay off workers (keeps those jobs at the cost of high prices for everyone else) Protect infant industries – allow new industries grow with temporary protection (how long?) National security – being dependent on others for important resources/products puts country at risk (what is important?)

Lead off 5/4 Why would you need to exchange currency if you were going on a trip to another country?

III. Value of Foreign Trade Currency Exchange Foreign exchange market – allows currency to be bought and sold (makes international trade possible) Foreign exchange rate – price of currency vs. other currency (ex: 1 US dollar might equal 2 Euros) Strong vs. Weak Strong – worth more compared to other currencies Weak – worth less compared to other countries Balance of Trade Surplus – more exports than imports Deficit –more imports than exports Balance of Trade and Currency Exchange

Balance of Trade and Currency Exchange Surplus – more exports than imports Deficit –more imports than exports Balance of Trade and Currency Exchange Surplus Makes currency stronger Domestic products become too expensive – decreases exports Foreign products become relatively cheaper – increases imports Eventually moves toward deficit Deficit Makes currency weaker Domestic products become relatively cheaper – increases exports Foreign products become relatively more expensive – decreases imports Eventually moves toward surplus

IV. International Institutions EU (European Union)– groups of several European countries that have combined economies and currency (Euro) NAFTA (North American Free Trade Agreement)– promotes free trade between US, Mexico, and Canada WTO – promotes free trade among 150 member nations OPEC (Organization of Petroleum Exporting Countries) – cartel of countries that work together to control a large supply of the world’s oil

Lead off 5/9 Why are some countries more wealthy than others? How can a less wealthy country improve its economy?

V. Economic Development Levels of Development Developed High standard of living Market economy Industrialized Examples: US, Canada, western Europe, Japan, South Korea Transitional Going from command to market Examples: China, Russia, eastern Europe Less than developed Standards of Development Factors Affecting Development

V. Economic Development Levels of Development Developed Transitional Going from command to market Examples: China, Russia, eastern Europe Less than developed Low standard of living Less industry Very little infrastructure Examples: Central and South America, Africa, southeast Asia Standards of Development Factors Affecting Development

V. Economic Development Levels of Development Standards of Development – how economists measure economic development Per Capita GDP Health - infant mortality and life expectancy Education - literacy rate Consumption -TV, phone, computer, cell phone Energy use –electricity Labor Force - ratio of manufacturing and service to agriculture Factors Affecting Development

V. Economic Development Levels of Development Standards of Development Factors Affecting Development Human capital – healthy, educated workers Physical capital – machines and technology Stable governments Stable prices Protected property rights Open international trade Social and economic mobility – ability of people to improve class Limited government Lack of corruption Foreign investment and assistance

VI. Economic Transitions Examples Russia/Eastern Europe – change to capitalism after the fall of the Soviet Union China – limited allowance of capitalism Challenges (Especially for Soviet Union/Eastern Europe) Poor infrastructure – roads, communication, ports, etc. Privatization – who gets to own the formerly government owned property? Price increases (although prices do eventually stabilize) Corruption – former government officials often rig the system and criminals become powerful It takes time getting used to freedom (some wish for the old days)