1. 7-1 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Governmental Influence On Trade

2. 7-2 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Possible impacts of import restrictions designed to create domestic employment May lead to retaliation by other countries.

3. 7-3 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Preventing Shipments to “Unfriendly” Countries Considerable governmental interference in international trade is motivated by: – political rather than economic concerns

4. 7-4 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Maintaining or extending spheres of influence Governments give aid and credits to, and encourage imports from, countries that join a political alliance or vote a preferred way within international bodies. A country’s trade restrictions may coerce governments to follow certain political actions or punish companies whose governments do not.

5. 7-5 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Instruments of Trade Control Trade controls that directly affect price and indirectly affect quantity include: – tariffs – subsidies

6. 6-6 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Theory of Absolute Advantage Suggests specialization through free trade because consumers will be better off if they can buy foreign-made products that are priced more cheaply than domestic ones A country may produce goods more efficiently because of a natural advantage or because of an acquired advantage

7. 6-7 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Theory of Comparative Advantage Also proposes specialization through free trade because it says that total global output can increase even if one country has an absolute advantage in the production of all products