International Trade 15-1 Why Nations Trade 15-2 Barriers to Free Trade 15-3 Measures of Trade

15-1 Why Nations Trade LO1-1 Understand why nations specialize in trade. LO1-2 Explain the concepts of comparative advantages and absolute advantage.

Why Nations Trade 15-1 Why Nations Trade export import Absolute and Comparative Advantage absolute advantage comparative advantage

Why Nations Trade An export is a good produced in one country and sold to another country. An import is a good produced in one country and purchased by another country. 15-1 Why Nations Trade

Absolute and Comparative Advantage Absolute advantage is the ability of a country to produce more of a good using the same or fewer resources as another country. Comparative advantage is the ability of a country to produce a good at a lower opportunity cost than another country. 15-1 Why Nations Trade

Barriers to Free Trade 15-2 LO2-1 Identify different types of trade barriers. LO2-2 Understand arguments for and against protectionism.

Barriers to Free Trade 15-2 Free Trade Versus Protectionism free trade embargo tariff World Trade Organization (WTO) quota Arguments For and Against Protection

An embargo is a law that bars trade with another country. Free Trade Versus Protectionism Free trade is the flow of goods between countries without restrictions or special taxes. Protectionism is the government’s use of trade barriers to protect domestic producers. An embargo is a law that bars trade with another country. A tariff is a tax on an import; also called customs duties. 15-2 Barriers to Free Trade

Free Trade Versus Protectionism The World Trade Organization (WTO) is a worldwide organization that enforces rulings on global trade issues. The WTO has 150 members and a standing appellate body to make final decisions regarding disputes between WTO members. A quota is a limit on the quantity of a good that can be imported in a given time period. 15-2 Barriers to Free Trade

Arguments For and Against Protection Free trade provides consumers with lower prices and larger quantities of goods from which to choose. Removing trade barriers might save families hundreds dollars a year. However, this action would cost some workers their jobs and thousands from lost income. 15-2 Barriers to Free Trade

Arguments For and Against Protection The most popular arguments for protection have strong political and emotional support, but weak support from economists. The infant industry argument is that new domestic industry needs protection because it is not yet ready to compete with older more established foreign competitors. National security argument is that defense-related industries must be protected to ensure national security. 15-2 Barriers to Free Trade

15-3 Measures of Trade LO3-1 Understand exchange rates and abandonment of the gold standard. LO3-2 Explain the effect of changes in the value of the U.S. dollar on balance of trade.

Measures of Trade 15-3 Exchange Rates exchange rate fixed exchange rate system flexible exchange rate system depreciation of currency appreciation of currency The Balance of Trade balance of trade trade surplus trade deficit

The exchange rate is the number of units of one nation’s currency. Exchange Rates The exchange rate is the number of units of one nation’s currency. A fixed exchange rate system is a system in which exchange rates are held constant by a country’s government. A flexible exchange rate system is a system in which exchange rates are determined by the forces of supply and demand. 15-3 Measures of Trade

Exchange Rates Depreciation of currency is a decrease in the value of a currency relative to other currencies. Appreciation of currency is an increase in the value of a currency relative to other currencies. 15-3 Measures of Trade

The Balance of Trade Balance of trade is the value of a nation’s imports subtracted from the value of its exports. A trade surplus arises when the value of a country’s exports is greater than the value of its imports. A trade deficit occurs when the value of the nation’s imports is greater than the value of its exports. 15-3 Measures of Trade