1. Intro to International Economics
SSEIN1: The student will explain why individuals, businesses, and governments trade goods and services.
SSEIN2: The student will explain why countries sometimes erect trade barriers and sometimes advocate free trade.

2. Specialization and Trade: Everyone Benefits
Increases the amount and variety of goods available to all nations; increases efficiency

3. Absolute Advantage
The ability of a nation or region to produce more of a certain product than another country of region

4. Comparative Advantage
The ability of one country/region to produce a good at less of an opportunity cost than another country/region

5. Example Sugar Fertilizer United States 80 100 Nicaragua 70 50 TOTAL
150
Which country has an absolute advantage in producing sugar?
Which country has an absolute advantage in producing fertilizer?
Which country has a comparative advantage in producing sugar?
Which country has a comparative advantage in producing fertilizer?

6. Balance of Trade balance of trade = exports – imports
A positive balance of trade is a trade surplus
(If a nation imports $1 million worth of goods/services and exports $4 million worth of goods/services; trade surplus of $3 million
A negative balance of trade is a trade deficit
(If a nation imports $2 million worth of goods/services and exports $1 million worth of goods/services; trade deficit of -$1 million

7. Balance of Payments
Looks at all transactions between households, firms, and govts. of one nation and those of other nations
Balance of payments = credits – debits
Ideally, the balance of payments should be 0 or a positive number

8. Trade Barriers

9. What are Trade Barriers?
Attempts to limit imports into a country
“Protectionism” – govt policy

10. Types of Trade Barriers
#1: Tariffs (tax on certain imports)
Make goods more expensive to buy
Reduces demand for foreign goods => helps nation’s own industries compete
Increases govt. revenue => reduces a nation’s budget deficit

11. #2: Quotas (limit on the # of certain products that can be imported from another country)
Example: U.S. forced a limit on the number of cars that could be imported from Japan

12. #3: Standards Rules about the quality of imports
If imports don’t pass a nation’s standards, they will not be accepted
Example: U.S. might ban the import of fruit that has been sprayed with certain pesticides

13. #4: Subsidies Direct financial aid to certain domestic industries
Lower a firm’s production costs and allow domestic firms to compete with lower-cost imports

14. #5: Embargo Total ban on one or more products from a particular nation
Often politically motivated => pressures other govts. to change behavior
Example: U.S. embargo on Cuban imports (Fidel Castro seized U.S. property and instituted communism)

15. Arguments FOR Free Trade
Improves economic efficiency
Offers consumers of all nations a wide variety of the lowest prices

16. Arguments AGAINST Free Trade
Protection of national security
Protection of “infant” industries
Protection of jobs

17. International Trading Blocs
#1: North American Free Trade Agreement (NAFTA)
United States, Canada, and Mexico
Gradual elimination of trade barriers between these countries

18. #2: European Union (EU)
27 European nations
Shared currency called the “euro”

19. #3: Association of Southeast Asian Nations (ASEAN)
Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Cambodia, Laos, Myanmar, and Vietnam
Elimination of most tariffs in this trading region