Voluntary Trade SS7E2 The student will explain how voluntary trade benefits buyers and sellers in a country.

What is voluntary trade? Voluntary trade occurs when both parties in a transaction see that they are going to benefit from the exchange. It is the key to a healthy economy.

Encourages specialization. Leads to more efficient production. Voluntary trade…. Encourages specialization. Leads to more efficient production. Produces higher profits.

Specialization is … Producing those goods a country can make most efficiently so they can trade them for goods made by others that cannot be produced locally.

Specialization Countries specialize in producing those goods and services they can produce most efficiently. Specialization in products a country makes best and that are in demand in the world market creates a way to earn money to buy items that cannot be produced locally.

Example: Specialization South Africa is rich in gold, diamonds, and platinum. SA specializes in developing this mineral wealth that is valuable to other countries.

Example: Specialization Uganda produces high quality cotton. Kenya is building high quality textile plants. If they plan and work together, these two countries can benefit from voluntary trade. Nigeria specializes in exporting much needed oil to the U.S. and other industrial nations.

Specialization can have a downside. Specialization in minerals in SA has led to extremely unequal distribution of the wealth in the country. Concentration in producing high quality cotton in Kenya has caused a decrease in the production of foods. Kenya must import food for its people.

Trade Barriers are … Anything that slows down or prevents one country from exchanging goods with another.

Trade Barriers Some trade barriers are put in place … To protect local industries from lower priced goods made in other countries. Due to political problems between countries. Trade is stopped until the political issues are settled.

THREE TYPES OF TRADE BARRIERS Tariffs Quotas Embargoes

Tariff A tariff is a tax placed on imported goods to make the imported item more expensive than a locally produced product. Imported Goods on Taxes

A quota is… A limit or specific number set for products that can be imported in a given amount of time. Import limits mean that more people will buy local products.

Example:OPEC (Organization of Petroleum Exporting Countries ) OPEC places quotas on how much oil each member nation can produce for the world market in order to keep prices where they want them to be. Nigeria, a member of OPEC, exports 15% of the oil imported by the U.S.

Embargo An embargo is when one country stops trade with another country in order to isolate a country and cause problems with that country’s economy. In 1963, the U. S. (along with some other countries) placed an embargo against South Africa because Americans did not agree with racial injustices that occurred in SA under Apartheid.

EXCHANGE RATE Exchange rate is used to determine the price of one country’s currency in terms of another country’s currency. Exchange rates help determine not only how much money you’ll have to spend when you travel to another country, but the level and extent of trade between countries.

CURRENCY EXCHANGE Currency is another word for “money”. In order for countries to buy and sell with each other, they must have a system to exchange currency. The CFA franc is a type of currency being used in west and central Africa to conduct trade between countries.