International Trade Created by: Ms. Daniel

We talk about trade in terms of trade between nations, but the actual trade is between individuals and businesses

Why Trade? 1.Allows countries to specialize in a good or service 2.Expands the number and types of goods and services available to people 3.Allows better utilization of resources

Absolute Advantage If a country has an absolute trade advantage, that means they can produce at a lower cost than any other country can Examples: Brazil- Coffee, United States- Corn and Wheat, Egypt- Cotton

Comparative Advantage Most countries have a comparative trade advantage because they have a lower opportunity cost to production that that good Example: Texas could produce banana's, coffee, and salmon, but there would be a huge opportunity cost to this- it would take a tremendous amount of energy, money, land, and time to develop these industries. It would make more sense for Honduras to produce bananas, Brazil to produce coffee, and Canada to produce salmon because they have a lower opportunity cost. Texas is then able to concentrate on what it does best- oil refining, technology, and agriculture

Balance of Trade Balance of trade refers to the difference between what a country exports and what it imports A trade surplus (positive balance of trade) means that a country exports more than it imports A trade deficit (negative balance of trade) means that a country imports more than it exports The U.S. has had a negative balance of trade for several decades, in part because of our dependence on foreign oil and the strong U.S. dollar

Free Trade Free Trade- A country that has a free trade policy has few restrictions on imports and exports Arguments for free trade: 1.Encourages competition and improves quality of products 2.Restricting trade hurts our economy because if we limit trade from other countries, they will limit trade from us 3.Encourages specialization and means lower prices for consumers

Protectionism Means to restrict through tariffs, import quotas, embargoes, and other limits (health/ safety reasons, etc) Arguments for protectionism: 1.Protects new industries so they can become strong before facing international competition 2.Ensures economic security for certain key industries- oil, defense, agriculture, etc 3.Protects jobs

Extra Information 1.When an economists says that an Country specializes in producing certain products they are saying that it is more beneficial for a country to produce only certain goods rather than everything they need since they specialize in this good 2.NAFTA- eliminated all trade barriers between Canada, Mexico, and the U.S. 3.United States is the largest importer and exporter 4.The Flexible Exchange Rate System is when the exchange rate between two countries is determined by supply and demand