International Trade By Ben Quick.

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Presentation transcript:

International Trade By Ben Quick

The U.S. and International Trade The sheer volume of exports and imports indicates that international trade is beneficial. Nations trade because they believe the products they receive (imports) are worth more than the products they sell (exports). Without international trade, many products would not be available on the world market. Many imports to the United States are necessities that would be unavailable without trade.

Absolute and Comparative Advantage A country has an absolute advantage when it can produce a product more efficiently than another country can. Even when one country enjoys an absolute advantage, trade between it and another country is still beneficial because of comparative advantage. A country has a comparative advantage when it produces a product relatively more efficiently. Relative efficiency is determined by the opportunity cost of producing one product over another.

The Gains from Trade Each country must produce more of the good in which it has a comparative advantage and then exchange the extra output for the extra output of its trading partners. Comparative advantage is based on the assumption that a country should produce a product that has a low opportunity cost.

Questions?