International Trade Definitions and Concepts Intro. to World Agricultural Science and Technology Fall 2002 Ms. Bailes

What on Earth Does This Mean? U.S. trade with Mexico and Canada is up as a result of NAFTA. Agriculture accounts for 7% of Malaysia’s GDP. Per capita consumption of rice in Indonesia is 1,600 pounds per year. Exports to China were down in 1999 due to lasting impacts of the Asian economic crisis. France has declared a ban on imports of beef products from Argentina due to recent FMD outbreaks.

Today’s Objectives Define terms important in discussing international trade Differentiate between exports and imports Explain the difference between comparative advantage and absolute advantage Identify potential gains from international trade of agricultural products

Terms to Know Trade - an exchange of products Export - a good transported away from the area Import - a good transported into the area Domestic - relating to one’s own country

Terms to Know, cont. Commodity - an economic good produced by agricultural or mining industries GDP - Gross Domestic Product - total value of a nation’s annual output of goods and services Per capita - per person

Terms to Know, cont. Comparative Advantage -a nation will specialize in the production and export of goods that they can produce cheaper than other countries due to their favorable conditions

Comparative Advantage Austria and Hungary both produce sugar beets and potatoes. Austria can produce sugar beets for $0.50 / lb. and potatoes for $0.30 / lb. Hungary can produce sugar beets for $0.45 / lb. and potatoes for $0.15 / lb. What will Hungary decide to specialize in? What will Austria specialize in?

Comparative Advantage Hungary will specialize in potatoes. Austria will be able to specialize in sugar beets. Austria will import potatoes from Hungary for $0.25 / lb. Hungary will import sugar beets from Austria for $0.35 / lb. Everyone will benefit.

Terms to Know, cont. Absolute Advantage - a nation will export goods certain goods because it can produce it cheaper than all other nations or other nations are unable to produce it

Potential Gains from Agricultural Trade Specialization in Goods of Efficient Production Gain from Exchange of Goods High Quality Goods Diversity of Selection Higher Export Prices Lower Import Prices Increases Standard of Living