Living in a World Economy 7th Grade Civics Miss Smith *pgs. 570-574 (21.4)

Specialization and Interdependence Many countries specialize in producing certain kinds of goods and services Interdependence means that countries depend on each other for different goods and services What is interdependence? What are some advantages and disadvantages of specialization for a country? It can gain a competitive advantage and increase trade, but it must make trade-offs and lose money through opportunity costs

Trade and Comparative Advantage Absolute advantage- country’s ability to produce something more cheaply than its trading partners Comparative advantage- country’s ability to make a product more efficiently Opportunity cost- value of the next best alternative that is given up when a country specializes

Free Trade Versus Protectionism Trade barrier- limit on the exchange of goods Also called protectionism Protects domestic jobs from foreign competition

Trade Barriers Tariffs Import Quotas and Voluntary Restrictions Revenue tariffs raise money for the government Protective tariffs encourage people to buy domestically made products Import Quotas and Voluntary Restrictions Embargoes Bans trade with specific countries

International Cooperation Reciprocal Trade Agreements Reduce protective tariffs Regional Trade Agreements Reduce or eliminate trade barriers International Trade Agreements World Trade Organization (WTO) The North American Free Trade Agreement (NAFTA) What tools can countries use to restrict or promote trade? They can use trade barriers, tariffs, import quotas, voluntary restrictions, and embargoes to restrict trade. They can use reciprocal trade agreements, regional trade organizations, and international trade agreements to promote trade

Free Trade and Protectionism Reasons people support protectionism: To protect industries and jobs To maintain high wages To protect national security So as not to support countries with poor labor laws Reasons people oppose protectionism: Could harm the economy Lead to price increases In what ways do protectionist policies affect both other countries and American consumers? They may harm the economies of other countries and may lead to price increases and trade wars, which could mean that American consumers would end up paying higher prices for their goods and services

Balance of Trade Balance of trade- difference between the value of a country’s exports and its imports Trade surplus- when a country sells more than it buys Trade deficit- when a country buys more than it sells How does international trade affect consumers? It gives consumers more choices and access to more goods. It also increases competition, leading to lower prices Why do you think the U.S. usually has a trade deficit? Lower labor costs make it cheaper to produce goods in other countries, so many American consumers buy these cheaper imported goods rather than goods produced in the U.S.