1. International Trade

2. Benefits of free trade
Nations can specialize in the production of goods in which they have a comparative advantage
Maximizes efficient use of global resources (factors of production)
By engaging in international trade based on the theory of comparative advantage a country can consume outside of it’s domestic production possibilities frontier

3. Trade barriers
Tariffs – tax imposed on an import product which increases the cost of a foreign product to domestic consumers
Quotas – limit on how much of a good can be imported
Also called VERs (voluntary export restraint)
Export Subsidies – government payments to firms that effectively lower the cost of production, enabling producers to lower their prices to compete in the international economy

4. Result of trade barriers
Protect domestic sellers
Hurts domestic buyers
Net result –
Higher prices
Lower quantity