Warm Up #34 Why does the U.S. trade goods & services with other countries? Explain why or not.

Class Confession We the Senior Class of 2016 will complete ALL of our assignments to best of our abilities and behave appropriately in class. We will respect all faculty, staff, substitutes, classmates, and especially Mr. Wilcox. We will graduate on time May 20, 2016 and become productive citizens in society.

SSEIN1 Scaffold understanding of the standard(s) and/or element(s). Paraphrase the standard(s) and/or element(s). Rewrite the standard including synonyms or brief definitions in parentheses and in a different color following the key terms found in step 1. The student will be able to explain (clarify) why individuals, businesses (firms), and governments trade (commerce) goods and services.

International Economics
International Trading Goods and Services SSEIN1 The student will explain why individuals, businesses, and governments trade goods and services.

International Trade KEY CONCEPT
Economic interdependence involves producers in one nation that depend on producers in other nations to supply them with certain goods and services. WHY THE CONCEPT MATTERS Nations choose to produce some things and trade for others. For example, Japan trades for the raw materials it uses to produce automobiles. It then turns around and trades the automobiles for other goods.

Benefits and Issues of International Trade
KEY CONCEPTS Nation’s economic patterns are based on the factors of production it has patterns change over time; for example, U.S. originally agricultural Specialization occurs when narrow range of products made increased productivity and profit Economic interdependence—reliance on others for products not made

Resource Distribution and Specialization
Example: Specialization Costa Rica exports bananas; has warm, wet climate bananas need relatively low agricultural wages are beneficial—production is labor intensive New Zealand exports wool, lamb, and mutton (sheep meat) has temperate climate, water, open grasslands needed for grazing has low population density, scientific breeding, mechanized processing

Specialization and Trade
When nations specialize in producing the things they can make most cheaply and easily they benefit the most. It depends on their resources. i.e. Climate, metals, etc.

Why do nations participate in International trade?
To increase WEALTH! Consumers get more choices.

Absolute and Comparative Advantage
KEY CONCEPTS Absolute advantage—nation’s ability to make product more efficiently due to uneven distribution of production factors in different areas Comparative advantage—ability to produce at lower opportunity cost absolute cost of product not important, just opportunity cost

Example: Absolute Advantage Australia produces more iron ore and steel than China with same labor Australia has absolute advantage

Example: Comparative Advantage p. 514 Law of comparative advantage—countries gain when: produce items they are most efficient at producing and are at the lowest opportunity cost If Australia’s ratio of steel to iron ore is 1:5 tons and China’s is 1:3 China has comparative advantage in steel production

International Trade Affects the National Economy
KEY CONCEPTS Exports—goods and services produced in one country, sold in others Imports—products produced in one country, purchased by another Costs and benefits of international trade vary by nation economists examine impact of exports and imports on prices and quantity

Impact 1: Exports on Prices and Quantity If a country begins exporting product, foreign buyers increase total demand demand curve shifts right, sets higher equilibrium price Higher prices at home is offset by more jobs and more income created by production expanded to meet demand

Impact 2: Imports on Prices and Quantity Imports shift supply curve right, lower equilibrium price Lower prices lead domestic producers to offer less of product improve efficiency, worker productivity, customer service Trade gives consumers increased selection of goods, lower prices Gives producers new markets, chance for more profits

The United States in the World Economy U.S. is world’s largest exporter; exports more services than imports tourism, transportation, architecture, construction, information systems Also world’s largest importer; imports more goods than it exports oil and refined oil products, machinery, raw materials Main trading partners: Canada, China, Mexico, Japan

Show What You Know! Georgia Milestone Practice Questions
International trade benefits ONLY nations that Export more than they import Import more than they export Participate in trade associations Trade according to the law of comparative advantage

The ability of one trading nation to make a product more efficiently than another trading nation is called Comparative advantage Favorable balance of trade Voluntary export restraint Absolute advantage

If Country A decides to export some of its televisions to Country B because the market for televisions in Country A is already well satisfied, then the Demand for televisions in Country B would decline Demand for televisions in Country A declines Price of televisions in Country A rises Price of televisions in Country B rises

The Difference between absolute advantage and comparative advantage when it comes to international economics

The End. Any Questions? Any Comments? Any Concerns?

Warm Up #35 If we could not trade goods and services from China, Japan, Canada, Brazil, Costa Rica, Taiwan and any other country in the world what do you think would happen economically for the U.S.? Explain your answer. 5 minutes

Class Confession We the Senior Class of 2016 will complete ALL of our assignments to best of our abilities and behave appropriately in class. We will respect all faculty, staff, substitutes, and classmates, and especially Mr. Wilcox. We will graduate on time May 20, 2016 and become productive citizens in society.

SSEIN1 You will be able to explain why countries sometimes erect trade barriers and sometimes advocate free trade. A. Define trade barriers as tariffs, quotas, embargoes, standards, and subsides. B. Identify costs and benefits of trade barriers over time. C. List specific examples of trade barriers. E. Evaluate arguments for and against free trade. Determine and define vocabulary. Identify key terms within the standard. Define each term. _________________________________________ ___________________________________________________________________________________________________________________________

List specific examples of trade barriers.
Scaffold understanding of the standard(s) and/or element(s). Paraphrase the standard(s) and/or element(s). Rewrite the standard including synonyms or brief definitions in parentheses and in a different color following the key terms found in step 1. Define trade (commerce) barriers (obstacles) as tariffs (taxes), quotas (proportions), embargoes (restrictions), standards (requirements), and subsides (payments). Identify costs (expenditures) and benefits (profits) of trade barriers over time. List specific examples of trade barriers. Evaluate (appraise) arguments for and against free trade

Trade Barriers SSEIN1 The student will explain why individuals, businesses, and governments trade goods and services.

Barriers to Trade KEY CONCEPTS Most nations pass trade limit laws to protect domestic industries Laws lead to higher prices, economic retaliation by other nations In long run, industries can only be saved by becoming competitive Trade restrictions are basically a political issue

Barriers to Trade Types of Trade Barriers
Trade barrier—law limiting free trade among nations; most mandatory Quota—limits on the amount of a product that can be imported Dumping—sale of product in other country at lower price than at home hurts domestic producers; gives consumers lower price

BMW Types of Trade Barriers Tariff—fee charged for goods brought from another country Revenue tariff—tax on imports, specifically to raise money rarely used today Protective tariff—tax on imported goods to protect domestic products raise price of goods more cheaply elsewhere

Voluntary Export Restraint (VER)—nation’s self-imposed limit on exports VER used to avoid a quota or tariff Embargo—law that cuts most or all trade with a specific country Informal trade barriers—licenses, environmental, health, safety laws

The Impact of Trade Barriers
KEY CONCEPTS Trade barriers may temporarily save domestic jobs lack of competition promotes inefficiency, higher prices Trade limits can lead to a trade war—succession of increasing trade barriers between nations

Impact 1: Higher Prices Trade barriers raise prices or keep them high In 2000, U.S., Japan set tariffs on South Korean semiconductor chips Korean and domestic chip prices went up in U.S. and Japan Mabach

Impact 2: Trade Wars Trade wars often result from disagreements over quotas or tariffs Can result over other issues EU banned U.S hormone-treated beef, U.S. set 100% tax on many EU foods Angus Beef

Arguments for Protectionism
KEY CONCEPTS Protectionism—use of trade barriers to protect domestic industries Purpose to protect jobs, national security, infant industries *new industries unable to compete with larger, established competitors

Argument 1: Protects Domestic Jobs? U.S. workers upset over jobs lost to countries with cheaper labor Trade barriers generally protect inefficient production, higher prices Laid-off voters influenced government to fund job training programs

Argument 2: Protects Infant Industries? Protection expected to allow new industries to grow until competitive This is used by developing nations to keep out goods from developed nations Some critics say that freedom from competition maintains perpetual (continuous) infancy, therefore the need for perpetual (lasting) support

Argument 3: Protects National Security? National security affects industries considered vital (absolutely necessary) for safety energy industry considered vital by most nations Political differences exist over which industries are truly vital 2006 Dubai forced to abandon deal to operate several port facilities critics doubted security concerns, worried over interference with trade

What is the primary reason for corporations leaving the U.S.?
Outsourcing Companies move jobs to other nations with lower labor costs.

What is a Trade Association?
NAFTA North American Free Trade Agreement eliminated or lowered tariffs and other trade barriers between the U.S., Canada & Mexico EU European Union has nations and shares currency called the euro. ASEAN Association of Southeast Asian Nations includes 10 nations eliminated tariffs in this trading region. A large free trade area that is formed by one or more tax, tariff, and trade agreements

8 minutes to complete and turn in!!
Closure Activity #30 Imagine that you have been asked to sign a pledge to be patriotic by buying only products made in the United States whenever possible. Discuss with your partner, why you would or would not sign. Use at least two economic concepts explained in this lesson to support your decision. 8 minutes to complete and turn in!!

The effect of trade barriers on domestic industries is to Decrease motivation for efficiency Increase motivation for efficiency Raise workers’ pay Subsidize imports

Show What You Know! Georgia Milestone Questions
The effect of trade barriers on domestic prices is to Keep them stable Lower them Prevent inflation Raise them

Protective tariffs are one kind of Embargo Quota Trade barrier Trade war

Which of the following is NOT a trading association? EU NAFTA ASEAN NATO

Warm Up #36 Looking at the projector answer the following questions on your Note Taking Guide.

Class Confession We the Senior Class of 2016 will complete ALL of our assignments to best of our abilities and behave appropriately in class. We will respect all faculty, staff, substitutes, and classmates, and especially Mr. Wilcox. We will graduate on time May 20, 2016 and become productive citizens in society.

SSEIN3 You will be able to explain how changes in exchange rates can have an impact on the purchasing power of individuals in the U.S. and in other countries. A. Define exchange rate as the price of one nation’s currency in terms of another nation’s currency. B. Locate information on exchange rates. C. Interpret exchange tables. D. Explain why, when exchange rates change, some groups benefit and others lose. SSEIN1C C. Explain the difference between balance of trade and balance of payments. Determine and define vocabulary. Identify key terms within the standard. Define each term. _______________________________________

Scaffold understanding of the standard(s) and/or element(s)
Scaffold understanding of the standard(s) and/or element(s). Paraphrase the standard(s) and/or element(s). Rewrite the standard including synonyms or brief definitions in parentheses and in a different color following the key terms found in step 1. The student will explain how changes in exchange (buying) rates can have an impact (influence) on the purchasing (buying) power of individuals in the U.S. and in other countries. Explain (clarify) the difference between balance (stability) of trade (exchange) and balance of payments (expenses).

Exchange Rates SSEIN3 The student will explain how changes in exchange rates can have an impact on the purchasing power of individuals in the U.S. and in other countries. Explain the difference between balance of trade and balance of payments.

What is an exchange rate?
The relative values of different currencies and is the price of one nation’s currency in terms of another nation’s currency. Currency One nation exchanges money in return for goods from another nation. For every 1 Franc= 80 Yen

How is a nation normally paid when goods are sold to another country?
In its own currency!

Why does the exchange rate change?
When there is more demand for a nation’s products, people need more of that nation’s currency to buy the products. Why does the exchange rate change? Value of Foreign Currency (in U.S. dollars) 7/27 2015 Value of $1 U.S. (in foreign currency) Canadian dollar .77 1.30 1.11 .90 Euro Japanese yen .01 123.22 Mexican Peso 16.28 .06

What is the price of Jordan’s (not underground economy) in pesos and Euros?
Jordan’s $150 U.S. $1 U.S. = pesos $150 U.S. X pesos = $2442 pesos $1 U.S. = .90 Euros $150 U.S. X .90 Euros = $135 Euros

Exchange rate change over time.
Value of $1 CAN in U.S. dollars Value of $1 U.S. in Canadian dollars 1.39 .73 1997 2011 .77 1.28 2015 1.30 .77 In 1997, the American $ was stronger, or worth more than the Canadian dollar. Americans traveled to Canada, they could exchange each American $1 for 1.39 Canadian Dollar, so they could buy more goods. In 2011, it has changed. The US Dollar lost value, but in 2015 the U.S. Dollar is stronger against the Canadian Dollar.

What is it when the American dollar loses value?
Depreciate When something loses value Appreciate When something gains in value

When the dollar is strong, or appreciates what happens?
Imports increase and are cheaper for consumers to purchase. Travel abroad is less expensive for Americans U.S. exports decline U.S. trade deficit increases

When the dollar is weak, or depreciates what happens?
U.S. exports increase and the prices of exports decrease Travel abroad is more expensive for American tourists U.S. imports decline and the price of imports increases The U.S. trade balance improves Foreign investment in U.S. businesses increases

Balance of Trade Is the rate at which a nation trades with other nations
Trade Surplus When a nation exports is more than its imports Trade Deficit When a nation imports is more than its exports

Regional and World Organizations
World Trade Organization In 1944, Allied nations met to plan for recovery after WWII, formed General Agreement on Tariffs and Trade World Trade Organization—formed in 1995 by nations that follow the GATT negotiates, administers trade agreements; resolves disputes monitors policies of over 150 members; gives support to developing countries

Any transaction that brings money INTO a nation Debit
Balance of Payments Is the value of all money coming into the country thanks to exports Credit Any transaction that brings money INTO a nation Debit Any transaction that takes money OUT of a nation

If the U.S. dollar can buy MORE in Ireland than the Euro can buy in the United States, then in comparison with the Euro, the U.S. dollar is said to be Strong Surplus weighted Trade weighted Weak

With a strong U.S. dollar, American Exporters benefit Foreign exchange markets benefit Importers benefit Speculators benefit

The World Trade Organization grew out of the recovery from The Great Depression The Suez crisis World War I World War II

5 minutes Closure Activity #31
p. 79 Practice 1: International Economic Concepts 1-2 p. 87 Practice 2: Trade Restrictions and Barriers 1-4 p p. 95 Multiple Choice Questions 1-8 5 minutes

Vocabulary Quiz & Test Economic Interdependence Specialization Resources Absolute Advantage Comparative Adv. Exports/Imports Trade Barrier Quota Dumping Tariff Revenue Tariff Protective Tariff Embargo VER Trade War Protectionism Outsourcing Infant Industries NAFTA Trade Surplus/Deficit Currency Depreciate Appreciate

The End Any Questions? Comments? Concerns?

Warm Up #34 Why does the U.S. trade goods & services with other countries? Explain why or not.

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Warm Up #34 Why does the U.S. trade goods & services with other countries? Explain why or not.

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