2. Benefits and Issues of
International Trade

3. Specialization v. Economic Interdependence
Specialization is a situation that occurs when an individual or a nation produce a narrow range of products.
Economic Interdependence is a situation where producers in one nation depend on others to provide goods and services they do not produce.

4. Specialization v. Economic Interdependence
Example:
A coal-rich nation that lacks advanced technology can trade its coal for manufactured goods, such as automobiles, from nations with higher levels of technology.

5. Absolute and Comparative Advantage
Absolute Advantage is the ability of one nation to produce products more efficiently than another nation.
Comparative Advantage is the ability of one nation to produce a product at a lower opportunity cost than another nation.

6. Absolute and Comparative Advantage
Example: One day’s labor produces…
Opportunity Cost for each country in terms of Steel? What about in terms of Oil?
England
Saudi Arabia
Steel
30 Tons
5 Tons
Oil
10 Barrels
60 Barrels

7. Who has the absolute advantage in Oil. What about in Steel
Who has the absolute advantage in Oil? What about in Steel? Who has the comparative advantage when producing Oil? What about when producing Steel?

8. Tariffs, Trade Barriers, and Embargos
Embargo- a law that cuts off trade with a specific country. Ex: United States and Cuba during the Cold War.
Trade Barrier- any law that limits free trade between nations.
Tariffs- a fee charged to goods brought into one country from another.

9. Tariff question
Canada has a 15% tariff on hockey gear imports from the Russia. If hockey gear costs $80, in Russia:
How much would it cost in Canada?
Would the tariff increase or decrease Russian exports to Canada?

10. Protectionism and Infant Industries
Protectionism is the use of trade barriers between nations to protect domestic industries.
Infant Industries- new industries that are often unable to compete against larger, more established competitors.

11. How would a tariff protect domestic industries?
Protective Tariff
How would a tariff protect domestic industries?