INTERNATIONAL ECONOMICS UNIT 4

SPECIALIZATION & VOLUNTARY EXCHANGE Most countries don’t produce everything they have and need because they have specialized. Specialization: where countries produce a narrower range of goods. It increases productivity Creates interdependence (where countries agree to rely on others due to specialization). Trade creates incentive to be cooperative and have peace

COMPARATIVE & ABSOLUTE ADVANTAGE Absolute Advantage: ability to produce MORE units than another producer  Country A can make more units  But country B still tries to contribute  Does NOT involve specialization Comparative: ability to produce a good at a lower opportunity cost than another producer  Whomever has the least opportunity cost, should make that item  Because they are able to produce it more efficiently than another country ZY

TRADE & PAYMENTS Balance of Trade: Only measures imports and exports of GOODS Only measures tangible items Balance of Payments: measures goods AND SERVICES with other countries Trade Surplus: when exports exceed imports (favorable) Trade Deficit: when imports exceed exports

RESTRICTIONS Tariffs: taxes on imports (can be raised on lowered by any country) A result is higher prices on items though Quotas: Limits on quantity of products that can be imported/exported Embargo: putting conditions on trading with a country all together

TRADE BLOCS EU-European Union NAFTA-North Atlantic Free Trade Agreement (US/MEX/CAN WTO-World Trade Organization- settles disputes among trading nations Smoot-Hawley Tariff: the USA's main goal emerged to protect American jobs and farmers from foreign competition. HIGHEST TARIFF IN US HISTORY

NAFTA North American Free Trade Agreement Creates free trade in North Atlantic countries (Canada, US, Mexico) Created more jobs and protected the region so they would work together

FOREIGN EXCHANGE Is the buying and selling of the currencies of different nations This is the price of one country’s currency in relation to another’s Exchange rate: Amount of one country’s currency that is equal to one unit of another’s

INTERNATIONAL AGENCIES International Monetary Fund (IMF) A.Helps all nations with making monetary policy decisions B.Gives loans to developing countries World Bank A. Lends money, gives aid & gives advice to developing countries