1. International Trade CHAPTER 18
Holt Economics
4/24/2017
CHAPTER 18
International Trade
SECTION 1: Specialization and Interdependence
SECTION 2: Foreign Exchange and Currencies
SECTION 3: Cooperation and Trade Barriers
Chapter 18

2. Objectives: SECTION 1 How does specialization encourage trade?
Specialization and Interdependence
Objectives:
How does specialization encourage trade?
How can absolute advantages influence economic choices?
How can comparative advantages affect a nation’s economy?

3. How specialization promotes trade:
SECTION 1
Specialization and Interdependence
How specialization promotes trade:
allows nations to become efficient in the production of a few goods and services
encourages countries to trade their goods and services for those they cannot or do not produce well

4. How absolute advantages can affect economic choices:
SECTION 1
Specialization and Interdependence
How absolute advantages can affect economic choices:
by promoting overspecialization
by increasing competition in prices for goods and services
leading to an examination of comparative advantages

5. How comparative advantages can affect economic choices:
SECTION 1
Specialization and Interdependence
How comparative advantages can affect economic choices:
encouraging and determining specialization
leading to production trade-offs
creating expansion of production possibilities
providing trading benefits

6. Objectives: SECTION 2 Why are foreign exchange rates necessary?
Foreign Exchange and Currencies
Objectives:
Why are foreign exchange rates necessary?
How does a nation determine its balance of payments?
What is the significance of the balance of trade?

7. Purposes of foreign exchange rates:
SECTION 2
Foreign Exchange and Currencies
Purposes of foreign exchange rates:
to determine the value of one country’s currency in relation to another country’s
to permit international trade and payment for goods and services traded

8. How a nation determines its balance of payments:
SECTION 2
Foreign Exchange and Currencies
How a nation determines its balance of payments:
by recording all payments and receipts occurring between its and other nations’ residents, businesses, and governments
by looking at the balance of trade

9. Significance of the balance of trade:
SECTION 2
Foreign Exchange and Currencies
Significance of the balance of trade:
important factor in determining a nation’s overall balance of payments
determines trade surpluses and deficits

10. Objectives: SECTION 3 Cooperation and Trade Barriers
Why do nations impose trade barriers?
What are the key arguments made in favor of free trade?
What types of agreements indicate that nations are following a policy of cooperation?

11. Reasons nations impose trade barriers:
SECTION 3
Cooperation and Trade Barriers
Reasons nations impose trade barriers:
to protect domestic industries and jobs from foreign competition
to maintain its standard of living
to prevent overspecialization
to promote fairness
to protect national security

12. Key arguments for free trade:
SECTION 3
Cooperation and Trade Barriers
Key arguments for free trade:
increases competition
leads to better-quality goods at better prices
promotes economic growth

13. Indicators of international cooperation:
SECTION 3
Cooperation and Trade Barriers
Indicators of international cooperation:
reciprocal trade agreements
regional trade organizations, such as the EU, CARICOM, ASEAN, and MERCOSUR
international trade agreements, such as GATT, the WTO, and NAFTA
multinational corporations

14. Wrap-Up CHAPTER 18 1. Why might a nation practice specialization?
2. Explain the difference between absolute advantage and comparative advantage.
3. What effect does currency depreciation have on a nation’s exports and imports?
4. What are the three principal types of trade barriers? Explain how each works to restrict international trade.
5. How has the advent of e-commerce affected trade?