1. International Economics
Why, no matter what anyone might hear, TRADE IS GOOD

2. Intro Movie Response
What are the advantages, disadvantages of Globalization?
What is the difference between comparative and absolute advantage?
Identify and explain the different barriers to trade. (List some examples as well)

3. International Trade
When countries interact with other countries, each country gains a higher standard of living.
A high degree of economic interdependence exists in the world
No country is able to get everything it needs within its own borders.
We live in a time in which most countries are moving toward open economies:
High degrees of free trade with few trade barriers such as quotas and tariffs.

4. Trade Efficiency
Absolute Advantage: one country can produce a product at lower cost or with higher labor productivity
Comparative Advantage: One country can produce at a lower opportunity cost than another country

5. Why Nations Trade
Comparative Advantage is the economic basis for specialization and trade.
If individuals and countries specialize in producing the goods in which they have the comparative advantage and trade for the goods in which others have the comparative advantage, both parties will be better off.
WHY???
SCARCITY!
Uneven distribution of resources

6. Bert and Betsy’s Dilemma
Household Chores (Output per hour)
Dishwashing (number of loads)
Sweeping (number of trash loads)
Betsy 2 3
Bert 1

7. Comparative Advantage
Shoes Wheat
China
U.S.A
.25 wheat
4 shoes
.5 wheat
2 shoes
Opportunity Cost in red

8. Important Trade Agreements
Trade Agreements are documents that outline the conditions under which trade will take place between nations.
World Trade Organization (WTO)
NAFTA: The North American Free Trade Agreement.
CAFTA: The Central American Free Trade Agreement.
ASEAN: Association of Southeast Asian Nations
EU: European Union
US is member of World Trade Organization (WTO)
Organization that seeks to reduce protectionism around the world.

9. Trade Barriers Tariffs Quotas Embargos Standards Subsidies
Costs vs. Benefits over time . . .

10. Balance of Payments
Current Account: a nation’s balance of trade, or it’s net income
Capital Account: the value of a nation’s assets
Trade of Goods
Trade of Services
Income from Investments
Investments in Foreign countries
Investments by Foreign countries in the U.S.

11. Balance of Trade
Trade Surplus – the value of a nation’s exports exceeds the value of what they import
Trade Deficit – the value of a nation’s exports are less than the value of what they import

16. Warm-up List two trade barriers
Explain how each of these acts as a barrier to trade.

17. Exchange Rates
Relative value of the American dollar in exchange for foreign currencies.
Most exchange rates are “floating”, e.g., they change based on the relative Supply and Demand for a currency.
The value of the dollar compared to the value of other currencies is determined by supply and demand.
Demand for U.S. dollars is synonymous with demand for U.S. products.
Foreigners importing U.S. products must pay U.S. companies in dollars and therefore must purchase dollars to purchase American made products.
High demand for American products will drive the value of the dollar up compared to other currencies.
Current Dollar Exchange Rates

18. Strong Dollar Weak Dollar
Exports are more expensive to world
Imports are cheaper to Americans
Fewer U.S. jobs
Less Inflation
More Foreign Investment
Less expensive foreign travel
Exports are cheaper to the world
Imports are more expensive to Americans
More U.S. jobs
Less Foreign investment
More expensive foreign travel

19. Weak Dollar What is a weak dollar?
The value of the dollar falls compared to one or more other currencies.
More US dollars are necessary to purchase foreign currency.
The value of the dollar is depreciating.
Foreign exporters – because the price of foreign goods and services are higher

20. Weak Dollar Who is helped by a weak dollar?
US producers – because they are competing with higher-priced imported goods and services
Foreign consumers – because they can buy US goods and services at lower prices
US exporters – because American goods and services become less expensive for foreign consumers.

21. Weak Dollar Who is hurt by a weak dollar?
US consumers – because the prices of foreign goods and services increase
US investors who invest in companies in other nations – because the price of foreign securities increases
Foreign exporters – because the price of foreign goods and services are higher

22. Strong Dollar What is a strong dollar?
The value of the dollar rises compared to one or more other currencies.
More foreign currency are necessary to purchase US dollars.
The value of the dollar is appreciating.

23. Strong Dollar Who is helped by a strong dollar?
US consumers – because the prices of foreign goods and services are lower
US investors who invest in companies in other nations – because the price of foreign securities decreases
US importers – because they can sell foreign goods and services at lower prices

24. Strong Dollar Who is hurt by a strong dollar?
US producers – because they are competing with lower-priced imports
Foreign consumers – because US goods and services are more expensive for them to purchase
US exporters – because American goods and services become more expensive for foreign consumers

25. Assessment
If the exchange rate between the US dollar and Australian dollar changes from 1USD = 1.8 AUD to 1USD = 1.5 AUD then which currency has depreciated (lost) value?
1 USD = .90 EUR
French soup = 1.80 euros. I want to buy 5 cups of French soup. How much would this cost in USD?