1. Splash Screen

2. Chapter Menu Chapter Introduction Section 1:Section 1:Absolute and Comparative Advantage Section 2:Section 2:Barriers to International Trade Section 3:Section 3:Foreign Exchange and Trade Deficits Visual Summary

3. Chapter Intro 1 You and a classmate are planning to open a lawn-service business. You will each contribute $200 toward the purchase of a mower, gas can, trimmer, and other materials for the business. Now it is time to get organized. Work with a classmate and make a list of the different “jobs” associated with your lawn-service business. What criteria will you use to divide up these jobs? Why? Read Chapter 16 to find out how nations make decisions about what to produce and trade with other nations.

4. Chapter Intro 2 Trade and specialization lead to economic growth for individuals, regions, and nations.

5. Chapter Intro-End

6. Section 1-Preview Section Preview In this section, you will learn that comparative advantage is the basis for international trade.

7. Section 1-Key Terms Content Vocabulary exports imports absolute advantageabsolute advantage production possibilities frontierproduction possibilities frontier Academic Vocabulary volume enabled comparative advantagecomparative advantage opportunity cost

8. A.A B.B C.C D.D Section 1 What products do you think the state of Texas primarily trades? A.Citrus fruits B. Oil and cattle C. Cattle and wine D.Computers

9. Section 1 Why Nations Trade Trade allows nations to specialize in some products and then trade them for goods and services that are more expensive to produce.

10. Section 1 Why Nations Trade (cont.) American Dependence on Trade Reasons to trade –Some countries lack essential raw materials. –Specialization Exports Imports

11. Section 1 Why Nations Trade (cont.) Sheer volume of trade between nations is proof that trade is beneficial. U.S. Merchandise Trade by Area

12. A.A B.B C.C D.D Section 1 The United States imports goods that amount to approximately how much per capita? A.$8,500 B.$6,500 C.$5,500 D.$2,500

13. Section 1 The Basis for Trade Trade works best when countries focus on those products they can produce best.

14. Section 1 Countries find it cheaper to import some products than to manufacturer them. Absolute advantage—country can produce more of a product than another country.Absolute advantage The Basis for Trade (cont.)

15. Section 1 Production possibilities frontier— diagram illustrating the maximum combinations of goods and/or services one can produce utilizing fully employed resources.Production possibilities frontier The Basis for Trade (cont.) The Gains from Trade

16. Section 1 Countries with an absolute advantage benefit from trade with another country whenever it has a comparative advantage because its opportunity cost is lower than another country’s.comparative advantageopportunity cost Total world output grows when there is specialization and trade among nations. The Basis for Trade (cont.)

17. A.A B.B C.C D.D Section 1 What happens to world output when there is specialization and international trade? A.Growth is slow but worthwhile. B. Growth is significant in concentrated areas. C. No additional growth in output takes place. D. There is a drop in world output.

18. Section 1-End

19. Section 2-Preview Section Preview In this section, you will learn that nations use tariffs and quotas to protect special interests, while the free trade movement tries to eliminate trade barriers.

20. Section 2-Key Terms Content Vocabulary tariff quota protective tariffprotective tariff revenue tariff protectionists free traders infant industries argumentinfant industries argument balance of paymentsbalance of payments Academic Vocabulary imposed justify most favored nation clausemost favored nation clause World Trade Organization (WTO)World Trade Organization (WTO) North American Free Trade Agreement (NAFTA)North American Free Trade Agreement (NAFTA)

21. A.A B.B C.C Section 2 Would you purchase a cell phone imported from Japan just because the price is a few dollars less than the one manufactured here? A.Yes, saving money is my goal. B.No, a few extra dollars in my pocket doesn’t compare to lost American jobs. C.It depends.

22. Section 2 Restricting International Trade Tariffs and quotas are the main ways to restrict international trade.

23. Section 2 Restricting International Trade (cont.) Restrictions to trade –TariffTariff Protective tariff Revenue tariff –QuotaQuota –Imported foods subjected to rigorous health inspections

24. Section 2 Restricting International Trade (cont.) Restrictions to trade –Requiring a license to import –Culture and nationalism

25. A.A B.B Section 2 Before the Civil War, tariffs were used largely to generate revenue for the federal government. A.True B.False

26. Section 2 Arguments for Protection Protectionists disagree with free traders over the best way to protect a country’s independence, industries, and workers.

27. Section 2 Protectionists and free traders are constantly in debate.Protectionistsfree traders Arguments for Protection (cont.) –National defense –Infant industries argumentInfant industries argument –Protecting American jobs –Keeping the money at home –Balance of paymentsBalance of payments –National pride

28. A.A B.B C.C Section 2 The United States imports significantly more products from China than it exports. The balance of payments is therefore significant. With which side of the debate do you align yourself? A.Protectionists B. Free traders C. Neither

29. Section 2 The Free Trade Movement Because tariffs hurt more than they helped during the Great Depression, the United States has found ways to reduce trade restrictions.

30. Section 2 Smoot-Hawley Tariff Act passed in 1930 The Free Trade Movement (cont.) –One of most restrictive tariffs in U.S. history –Import duties so high that other countries did same –International trade nearly ceased

31. Section 2 Reciprocal Trade Agreements Act passed in 1934 The Free Trade Movement (cont.) –Reduced tariffs up to 50% if other countries did the same. –Most favored nation clauseMost favored nation clause General Agreement on Tariffs and Trade (GATT) in 1947

32. Section 2 World Trade Organization (WTO) replaced GATT.World Trade Organization (WTO) The Free Trade Movement (cont.) –Administers trade agreements signed under GATT –Settles trade disputes between nations –Organizes trade negotiations –Provides tech assistance and training to developing countries

33. Section 2 North American Free Trade Agreement (NAFTA)North American Free Trade Agreement (NAFTA) The Free Trade Movement (cont.) –Has allowed NAFTA partners to capitalize on their comparative advantages

34. A.A B.B C.C D.D Section 2 If you were in charge of trade for all businesses or government agencies in your community, which trade practices would you engage in? A.Quotas B. Tariffs C. Most favored nation clause D. None of the above

35. Section 2-End

36. Section 3-Preview Section Preview In this section, you will learn that a long-lasting trade deficit affects the value of a nation’s currency as well as the value and volume of its exports and imports.

37. Section 3-Key Terms Content Vocabulary foreign exchangeforeign exchange foreign exchange rateforeign exchange rate fixed exchange ratesfixed exchange rates flexible exchange ratesflexible exchange rates floating exchange ratesfloating exchange rates Academic Vocabulary secure persistent trade deficit trade surplus trade-weighted value of the dollartrade-weighted value of the dollar

38. A.A B.B C.C Section 3 Which do you think is better for the U.S. economy? A.Strong dollar B.Weak dollar C.Doesn’t matter

39. Section 3 Financing International Trade International trade relies on the ability to exchange foreign currencies.

40. Section 3 Financing International Trade (cont.) Supply and demand causes the dollar and other international currency to fluctuate daily. Foreign exchange—different currencies are bought and sold for international tradeForeign exchange Foreign exchange rate—price of one country’s currency in terms of another country’sForeign exchange rate Foreign Exchange Rates

41. Section 3 Financing International Trade (cont.) Two major kinds of exchange rates exist: –Fixed exchange ratesFixed exchange rates –Flexible exchange rates or floating exchange ratesFlexible exchange ratesfloating exchange rates Flexible Exchange Rates

42. Section 3 Financing International Trade (cont.) Whenever the dollar falls—exports tend to go up and imports down. If dollar rises, the reverse is true. The Global Economy & YOU Big Mac Index

43. A.A B.B C.C D.D Section 3 Would the price of a pair of Levi jeans in Russia be the same as the price here in the United States? A.No, price in Russia would be overvalued against the dollar. B. No, price in Russia would be undervalued against the dollar. C. Yes, price would be the same.

44. Section 3 Trade Deficits and Surpluses The strength of the dollar affects trade and therefore trade deficits and surpluses.

45. Section 3 The international value or strength of the dollar affects trade: Trade Deficits and Surpluses (cont.) –Trade deficitTrade deficit –Trade surplusTrade surplus

46. Section 3 Federal Reserve System tracks the trade- weighted value of the dollar.trade- weighted value of the dollar Trade Deficits and Surpluses (cont.) International Value of the Dollar –If index falls—dollar is weak in relation to other currencies. –If index rises—dollar is strong.

47. Section 3 A persistent trade imbalance can affect income and employment. No net gain in having a strong or a weak dollar—one sector is helped, another hurt. Trade Deficits and Surpluses (cont.) Profiles in Economics: Jerry Yang

48. A.A B.B C.C D.D Section 3 What is the result of U.S. exports when the dollar is strong? A.U.S. imports decline. B. Exports become cheaper for other nations. C. U.S. imports increase. D. U.S. trade surplus results.

49. Section 3-End

50. Absolute and Comparative Advantage A country has absolute advantage when it can produce more of a product than can another country. It has comparative advantage when it can produce a product at a lower opportunity cost than another country. When countries focus on those products for which they have comparative advantage, world production increases. VS 1

51. VS 2 Free Trade Movement After strict tariffs severely limited world trade during the early years of the Great Depression, the United States and other countries worked to open trade.

52. VS 3 Trade Deficits and Surpluses The strength of the dollar affects the balance of trade of the United States.

53. VS-End

54. Figure 1

55. Figure 2

56. Figure 3

57. Figure 4a

58. Figure 4b

59. Figure 5

60. Figure 6

61. Figure 7

62. Profile Jerry Yang (1968– ) cofounder of the Internet Web portal Yahoo! became a billionaire three years after starting the company ranked on Forbes’s list of the world’s richest people

63. Concept Trans Menu Economic Concepts Transparencies Transparency 20Absolute and Comparative Advantage Transparency 21Exchange Rates and Balance of Payments Select a transparency to view.

64. Concepts Trans 1

65. Concepts Trans 2

66. DFS Trans 1

67. DFS Trans 2

68. DFS Trans 3

69. Vocab1 exports the goods and services that a nation sells to other nations

70. Vocab2 imports the goods and services that a nation buys from other nations

71. Vocab3 absolute advantage country’s ability to produce more of a given product than another country can produce

72. Vocab4 production possibilities frontier diagram showing the maximum combinations of goods and/or services an economy can produce when all resources are fully employed

73. Vocab5 comparative advantage country’s ability to produce a given product relatively more efficiently than another country by doing it at a lower opportunity cost

74. Vocab6 opportunity cost cost of the next-best alternative use of money, time, or resources when making a choice

75. Vocab7 volume amount; quantity

76. Vocab8 enabled made possible

77. Vocab9 tariff tax placed on an imported product

78. Vocab10 quota limit on the amount of a good that is allowed into a country

79. Vocab11 protective tariff tax on an imported product designed to protect less-efficient domestic producers

80. Vocab12 revenue tariff tax placed on imported goods to raise revenue

81. Vocab13 protectionist person who wants to protect domestic producers against foreign competition with tariffs, quotas, and other trade barriers

82. Vocab14 free trader person who favors fewer or even no trade restrictions

83. Vocab15 infant industries argument argument that new and emerging industries should be protected from foreign competition until they are strong enough to compete

84. Vocab16 balance of payments difference between money paid to, and received from, other nations in trade

85. Vocab17 most favored nation clause trade law allowing another country to enjoy the same tariff reductions the United States negotiates with any third country

86. Vocab18 World Trade Organization (WTO) international agency that administers trade agreements, settles trade disputes between governments, organizes trade negotiations, and provides technical assistance and training for developing countries

87. Vocab19 North American Free Trade Agreement (NAFTA) agreement signed in 1993 to reduce tariffs and increase trade among the United States, Canada, and Mexico

88. Vocab20 imposed established; applied

89. Vocab21 justify to defend as warranted or necessary

90. Vocab22 foreign exchange various currencies used to conduct international trade

91. Vocab23 foreign exchange rate price of one country’s currency in terms of another country’s currency

92. Vocab24 fixed exchange rate system under which the values of currencies are fixed in relation to one another

93. Vocab25 flexible exchange rates system that relies on supply and demand to determine the value of one currency in terms of another

94. Vocab26 floating exchange rates system that relies on supply and demand to determine the value of one currency in terms of another

95. Vocab27 trade deficit balance of payments outcome when spending on imports exceeds revenues received from exports

96. Vocab28 trade surplus balance of payments outcome when revenues received from exports exceed spending on imports

97. Vocab29 trade-weighted value of the dollar index showing strength of the U.S. dollar against a group of major foreign currencies

98. Vocab30 secure obtain

99. Vocab31 persistent continuous, without signs of weakening

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