1. International Trade 15-1 Why Nations Trade 15-2 Barriers to Free Trade
15-3
Measures of Trade

2. 15-1
Why Nations Trade
LO1-1
Understand why nations specialize in trade.
LO1-2
Explain the concepts of comparative advantages and absolute advantage.

3. Why Nations Trade 15-1 Why Nations Trade export import
Absolute and Comparative Advantage
absolute advantage
comparative advantage

4. Why Nations Trade
An export is a good produced in one country and sold to another country.
An import is a good produced in one country and purchased by another country.
15-1 Why Nations Trade

5. Absolute and Comparative Advantage
Absolute advantage is the ability of a country to produce more of a good using the same or fewer resources as another country.
Comparative advantage is the ability of a country to produce a good at a lower opportunity cost than another country.
15-1 Why Nations Trade

6. Barriers to Free Trade 15-2 LO2-1
Identify different types of trade barriers.
LO2-2
Understand arguments for and against protectionism.

7. Barriers to Free Trade 15-2 Free Trade Versus Protectionism free trade
embargo
tariff
World Trade Organization (WTO)
quota
Arguments For and Against Protection

8. An embargo is a law that bars trade with another country.
Free Trade Versus Protectionism
Free trade is the flow of goods between countries without restrictions or special taxes.
Protectionism is the government’s use of trade barriers to protect domestic producers.
An embargo is a law that bars trade with another country.
A tariff is a tax on an import; also called customs duties.
15-2 Barriers to Free Trade

9. Free Trade Versus Protectionism
The World Trade Organization (WTO) is a worldwide organization that enforces rulings on global trade issues.
The WTO has 150 members and a standing appellate body to make final decisions regarding disputes between WTO members.
A quota is a limit on the quantity of a good that can be imported in a given time period.
15-2 Barriers to Free Trade

10. Arguments For and Against Protection
Free trade provides consumers with lower prices and larger quantities of goods from which to choose.
Removing trade barriers might save families hundreds dollars a year. However, this action would cost some workers their jobs and thousands from lost income.
15-2 Barriers to Free Trade

11. Arguments For and Against Protection
The most popular arguments for protection have strong political and emotional support, but weak support from economists.
The infant industry argument is that new domestic industry needs protection because it is not yet ready to compete with older more established foreign competitors.
National security argument is that defense-related industries must be protected to ensure national security.
15-2 Barriers to Free Trade

12. 15-3
Measures of Trade
LO3-1
Understand exchange rates and abandonment of the gold standard.
LO3-2
Explain the effect of changes in the value of the U.S. dollar on balance of trade.

13. Measures of Trade 15-3 Exchange Rates exchange rate
fixed exchange rate system
flexible exchange rate system
depreciation of currency
appreciation of currency
The Balance of Trade
balance of trade
trade surplus
trade deficit

14. The exchange rate is the number of units of one nation’s currency.
Exchange Rates
The exchange rate is the number of units of one nation’s currency.
A fixed exchange rate system is a system in which exchange rates are held constant by a country’s government.
A flexible exchange rate system is a system in which exchange rates are determined by the forces of supply and demand.
15-3 Measures of Trade

15. Exchange Rates
Depreciation of currency is a decrease in the value of a currency relative to other currencies.
Appreciation of currency is an increase in the value of a currency relative to other currencies.
15-3 Measures of Trade

16. The Balance of Trade
Balance of trade is the value of a nation’s imports subtracted from the value of its exports.
A trade surplus arises when the value of a country’s exports is greater than the value of its imports.
A trade deficit occurs when the value of the nation’s imports is greater than the value of its exports.
15-3 Measures of Trade