International Trade CHAPTER 18 Holt Economics 4/24/2017 CHAPTER 18 International Trade SECTION 1: Specialization and Interdependence SECTION 2: Foreign Exchange and Currencies SECTION 3: Cooperation and Trade Barriers Chapter 18

Objectives: SECTION 1 How does specialization encourage trade? Specialization and Interdependence Objectives: How does specialization encourage trade? How can absolute advantages influence economic choices? How can comparative advantages affect a nation’s economy?

How specialization promotes trade: SECTION 1 Specialization and Interdependence How specialization promotes trade: allows nations to become efficient in the production of a few goods and services encourages countries to trade their goods and services for those they cannot or do not produce well

How absolute advantages can affect economic choices: SECTION 1 Specialization and Interdependence How absolute advantages can affect economic choices: by promoting overspecialization by increasing competition in prices for goods and services leading to an examination of comparative advantages

How comparative advantages can affect economic choices: SECTION 1 Specialization and Interdependence How comparative advantages can affect economic choices: encouraging and determining specialization leading to production trade-offs creating expansion of production possibilities providing trading benefits

Objectives: SECTION 2 Why are foreign exchange rates necessary? Foreign Exchange and Currencies Objectives: Why are foreign exchange rates necessary? How does a nation determine its balance of payments? What is the significance of the balance of trade?

Purposes of foreign exchange rates: SECTION 2 Foreign Exchange and Currencies Purposes of foreign exchange rates: to determine the value of one country’s currency in relation to another country’s to permit international trade and payment for goods and services traded

How a nation determines its balance of payments: SECTION 2 Foreign Exchange and Currencies How a nation determines its balance of payments: by recording all payments and receipts occurring between its and other nations’ residents, businesses, and governments by looking at the balance of trade

Significance of the balance of trade: SECTION 2 Foreign Exchange and Currencies Significance of the balance of trade: important factor in determining a nation’s overall balance of payments determines trade surpluses and deficits

Objectives: SECTION 3 Cooperation and Trade Barriers Why do nations impose trade barriers? What are the key arguments made in favor of free trade? What types of agreements indicate that nations are following a policy of cooperation?

Reasons nations impose trade barriers: SECTION 3 Cooperation and Trade Barriers Reasons nations impose trade barriers: to protect domestic industries and jobs from foreign competition to maintain its standard of living to prevent overspecialization to promote fairness to protect national security

Key arguments for free trade: SECTION 3 Cooperation and Trade Barriers Key arguments for free trade: increases competition leads to better-quality goods at better prices promotes economic growth

Indicators of international cooperation: SECTION 3 Cooperation and Trade Barriers Indicators of international cooperation: reciprocal trade agreements regional trade organizations, such as the EU, CARICOM, ASEAN, and MERCOSUR international trade agreements, such as GATT, the WTO, and NAFTA multinational corporations

Wrap-Up CHAPTER 18 1. Why might a nation practice specialization? 2. Explain the difference between absolute advantage and comparative advantage. 3. What effect does currency depreciation have on a nation’s exports and imports? 4. What are the three principal types of trade barriers? Explain how each works to restrict international trade. 5. How has the advent of e-commerce affected trade?