Imports- -goods brought into a nation. Ex. Radios, TVs, Motorcycles Exports- -good shipped to other nations to sell. **Nations benefit from trade because each nation differs in the type and amount of factors of production it has available to use in the creation of products.

**Nations cannot produce everything they want and do it cheaply because of opportunity cost. Absolute Advantage- -when a nation can produce more of a product than another nation can. Ex. Soybeans Corn Alpha 10 50 Beta 8 25 **Alpha has the absolute advantage in soybeans and corn because it can produce more than Beta.

Comparative Advantage- -Ability of a nation to produce a product at a lower opportunity cost. Ex. Soybeans Corn Alpha 10 50 Beta 8 25 **Clearly Alpha has the comparative advantage in corn because it can produce so much more than Beta. **Since Beta’s soybean production is comparatively close to Alpha’s, Beta has the comparative advantage in soybeans.

Fruit Fish Phil 60 20 Lil 80 60 *Who has the absolute advantage in fish? (In other words, who can produce the most?) *Who has the absolute advantage in fruit? *Who has the comparative advantage in fish? (In other words, who has the lowest opportunity cost?) *Who has the comparative advantage in fruit?

CD’s Beef Japan 4 2 Canada 4 6 Absolute advantage in beef? Absolute advantage in cd’s? Comparative advantage in beef? Comparative advantage in cd’s?

Iron Ore Steel Australia 5,000 tons 1,000 tons China 2,700 tons 900 tons Absolute advantage in iron ore? Absolute advantage in steel? Comparative advantage in iron ore? Comparative advantage in steel?

Computers T.V.s U.S. 50 50 Japan 10 40 Absolute advantage in computers? Absolute advantage in T.V.s? Comparative advantage in computers? Comparative advantage in T.V.s?

*The purpose of international trade is to obtain imports. We must export to pay for our imports

Balance of Trade - - difference between the amount of imports and exports. Positive Balance of Trade - - when a nation exports more than it imports. Negative Balance of Trade - - when a nation imports more than it exports (Trade Deficit)

**The U.S. has had a trade deficit since the early 1970’s and it continues to grow. **A trade deficit is not always a bad thing. 1. Variety of goods and services. 2. Keeps American companies’ prices down 3. As other nations invest in the U.S. economy, it makes jobs for Americans in supporting industries.