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3. Splash Screen Chapter 17 International Trade

4. 3 Contents CHAPTER INTRODUCTION SECTION 1Absolute and Comparative Advantage SECTION 2Barriers to International Trade SECTION 3Financing and Trade Deficits CHAPTER SUMMARY CHAPTER ASSESSMENT Click a hyperlink to go to the corresponding section. Press the ESC key at any time to exit the presentation.

5. 4 Chapter Introduction 1 Economics and You Look at the labels on your clothes, in your shoes, on food products you buy, or even on the car you drive–and you see why international trade is important to everyone. In Chapter 17, you will learn about the role international trade plays in the American economy. Click the Speaker button to listen to Economics and You. Click the mouse button or press the Space Bar to display the information.

6. 5 Chapter Introduction 2 Chapter Objectives Explain the importance of international trade in today’s economy.  Describe the basis for international trade.  Explain why total world output increases when countries specialize to engage in trade. Section 1: Absolute and Comparative Advantage Click the mouse button or press the Space Bar to display the information.

7. 6 Chapter Introduction 3 Chapter Objectives Click the mouse button or press the Space Bar to display the information. Explain how international trade can be restricted to protect special interests.  Cite the main argument used in support of protection.  Relate the history of the free trade movement. Section 2: Barriers to International Trade

8. 7 Chapter Introduction 4 Chapter Objectives Section 3: Financing and Trade Deficits Click the mouse button or press the Space Bar to display the information. Explain how foreign currency is used in trade.  Describe the problem of a trade deficit and the main solution to the problem.

9. End of Chapter Introduction Click the mouse button to return to the Contents slide.

10. 9 Section 1-1 Study Guide Main Idea Nations trade according to the theory of comparative advantage.  Reading Strategy Graphic Organizer As you read the section, complete graphic organizers similar to the ones on page 467 of your textbook by defining each term and providing an example of each. Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 467 of your textbook.

11. 10 Key Terms –imports  –absolute advantage  –comparative advantage –exports  Section 1-2 Study Guide (cont.) Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 467 of your textbook.

12. 11 Section 1-3 Objectives After studying this section, you will be able to:  Applying Economic Concepts Comparative Advantage When you do the chores around the house, you are probably better at some than others. How does the concept of comparative advantage help everyone become more productive? Study Guide (cont.) –Explain the importance of international trade in today’s economy.  –Describe the basis for international trade.  –Explain why total world output increases when countries specialize to engage in trade.  Click the Speaker button to listen to the Cover Story. Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 467 of your textbook.

13. 12 Section 1-4 Click the mouse button or press the Space Bar to display the information. Introduction The key to trade–whether among people, states, or countries–is specialization.  Some people specialize in cutting hair. Others specialize in fixing computers.  These people exchange their services for money, which they then use to buy the specialized goods and services they need from others.

14. 13 Section 1-4 Click the mouse button or press the Space Bar to display the information. Introduction (cont.) Different regions of a country specialize in certain economic activities in much the same way. New York, for example, is a center of the U.S. financial industry, and Detroit specializes in automobiles.  The Midwest and High Plains areas are known for wheat farming. Texas is recognized for oil and cattle, while Florida and California are famous for citrus fruit.

15. 14 Section 1-4 Click the mouse button or press the Space Bar to display the information. Introduction (cont.) All of these states trade with one another so that people in one area can consume the goods and services that workers in other areas offer.  If you want to find out what a country specializes in, look at its exports—the goods and services that it produces and then sells to other nations.

16. 15 Section 1-4 Click the mouse button or press the Space Bar to display the information. Did You Know? As the Industrial Revolution spread across Europe, its nations began to build colonial empires in Asia and Africa so that they would have a reliable supply of the raw materials they needed for their factories. Former colonies had to end European colonialism in order to benefit from the exportation of their own natural resources.

17. 16 Section 1-5 Click the mouse button or press the Space Bar to display the information. The sheer volume of exports and imports indicates that international trade is beneficial.  Nations trade because they believe the products they receive (imports) are worth more than the products they sell (exports).  The U.S. and International Trade Without international trade, many products would not be available on the world market.  Many imports to the United States are necessities that would be unavailable without trade.

18. 17 Section 1-7 The U.S. and International Trade (cont.) Figure 17.1

19. 18 Section 1-Assessment 1 Discussion Question Think about what would happen if the United States could not obtain oil on the world market. What would the United States have to do in order to get more oil? The country’s industries would either have to find a domestic source, find an equally useful substitute, or stop producing certain products. Whatever the scenario, there would probably be increased production costs and a reduction in supply. Click the mouse button or press the Space Bar to display the answer.

20. 19 Section 1-8 Click the mouse button or press the Space Bar to display the information. A country has an absolute advantage whenever it is able to produce more of a given product than another.  Even when one country enjoys an absolute advantage, trade between it and another country is still beneficial because of comparative advantage.  The Basis for Trade A country has a comparative advantage when it produce a product relatively more efficiently. Relative efficiency is determined by the opportunity cost of producing one product over another.

21. 20 Section 1-Assessment 1 Discussion Question Both pants and skirts sell for $10 apiece. You can make six skirts in a day, or four pairs of pants. Should you trade your skirts with someone who can make three pairs of pants in a day? Yes. Though you will have on less pair of pants then if you made pants yourself, you can instead put your time into making skirts and be much better off. Click the mouse button or press the Space Bar to display the answer.

22. 21 Section 1-19 Click the mouse button or press the Space Bar to display the information. The Gains From Trade Each country must produce more of the good in which it has a comparative advantage and then exchange the extra output for the extra output of its trading partners.  Comparative advantage is based on the assumption that a country should produce a product that has a low opportunity cost.

23. 22 Section 1-10 The Gains From Trade (cont.)

24. 23 Section 1-18 Figure 17.2c The Gains From Trade (cont.)

25. 24 Section 1-Assessment 1 Discussion Question Think of a product that is produced in our state. What factors contributed to our state’s comparative advantage? Factors might include climate, fertile soil, population density, and experienced labor force, and transportation. Click the mouse button or press the Space Bar to display the answer.

26. 25 Section 1-Assessment 1 Section Assessment Main Idea What does the theory of comparative advantage offer as a guideline to countries? A country should produce the products that it produces relatively best. Click the mouse button or press the Space Bar to display the answer.

27. 26 Section 1-Assessment 2 Section Assessment (cont.) Explain why international trade is important in today’s economy. Many essential raw materials not available in the United States must be imported. Click the mouse button or press the Space Bar to display the answer.

28. 27 Section 1-Assessment 3 Section Assessment (cont.) Explain the concepts of absolute advantage and comparative advantage. absolute advantage: when a country is able to produce more of a given product than another; comparative advantage: when a country has the ability to produce a product relatively more efficiently/at a lower opportunity cost Click the mouse button or press the Space Bar to display the answer.

29. 28 Section 1-Assessment 5 Section Assessment (cont.) Comparative Advantage If you were to open a business with two of your best friends, how would you divide the work to be done? Would your decisions regarding who does what reflect comparative advantage? Explain. Answers will vary. Click the mouse button or press the Space Bar to display the answer.

30. 29 Section 1-Assessment 6 Section Assessment (cont.) Making Generalizations Do you know of a product for which your state has a comparative advantage? Explain how this might affect trade with another state. Answers will vary. Click the mouse button or press the Space Bar to display the answer.

31. 30 Section 1-Assessment 7 Discuss the following: “International trade is the life-blood of the economy.” Section Close

32. End of Section 1 Click the mouse button to return to the Contents slide.

33. 32 Section 2-1 Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 472 of your textbook. Study Guide Main Idea Tariffs and quotas are two restrictions on international trade.  Reading Strategy Graphic Organizer As you read the section, complete a graphic organizer similar to the one on page 472 of your textbook by describing the differences between a tariff and a quota.

34. 33 Section 2-2 Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 472 of your textbook. Key Terms –quota  –protective tariff  –revenue tariff  –dumping  –protectionists  –free traders  –infant industries argument  –tariff  Study Guide (cont.) –balance of payments  –most favored nation clause  –World Trade Organization (WTO)  –North American Free Trade Agreement (NAFTA)

35. 34 Section 2-3 Click the Speaker button to listen to the Cover Story. Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 472 of your textbook. Objectives After studying this section, you will be able to:  Applying Economic Concepts Quotas Do you think the prices of some goods are too high? How can international trade help keep some prices low? Study Guide (cont.) –Explain how international trade can be restricted to protect special interests.  –Cite the main argument used in support of protection.  –Relate the history of the free trade movement. 

36. 35 Section 2-4 Click the mouse button or press the Space Bar to display the information. Introduction Although international trade can bring many benefits, some people object to it because it can displace selected industries and groups of workers in the United States.  The European ban on American hormone- treated beef is just one example of attempts to restrict trade.

37. 36 Section 2-4 Click the mouse button or press the Space Bar to display the information. Did You Know? International trade benefits port cities— those with harbors—as well as cities with extensive industry. Ports in Louisiana, Texas, New York, and New Jersey together handle over 109 million tons of exports, based on 1997 figures.

38. 37 Section 2-5 Click the mouse button or press the Space Bar to display the information. Two major ways of restricting trade are through a tariff, or tax placed on imports, and a quota, a limit on the quantities of a product that can be imported.  A protective tariff is one that is high enough to protect less efficient domestic industries.  Restricting International Trade A revenue tariff is one high enough to generate revenue.

39. 38 Section 2-5 Click the mouse button or press the Space Bar to display the information. Restricting International Trade (cont.) Most quotas are used to reduce the supply of a product and keep prices high for domestic producers.  Other barriers to trade include overly rigorous health inspections and difficult licensing requirements.

40. 39 Section 2-Assessment 1 Discussion Question Current trade agreements give country A the right to retaliate with trade barriers if country B restricts country’s A products. Do you think that’s a good idea? Why or why not? Answers will vary. It does provide a mechanism for enforcement, however, and could lead to further barriers. Mediation is sometimes a more effective response. Click the mouse button or press the Space Bar to display the answer.

41. 40 Section 2-10 Click the mouse button or press the Space Bar to display the information. Protectionists are people who favor trade barriers that protect domestic industries and offer various arguments to defend their position.  According to one argument, a country could become so specialized that it would end up being dependent enough on other countries that it would affect national defense.  Arguments for Protection The infant-industries argument is the belief that new industries should be protected from foreign competition.

42. 41 Section 2-10 Click the mouse button or press the Space Bar to display the information. Some argue that tariffs and quotas protect domestic jobs form cheap foreign labor.  The argument for keeping the money at home claims that limiting imports will keep American money in the United States.  Arguments for Protection (cont.) The balance of payments argument suggests that protection would keep down the difference between the money a country pays to and what it receives from other nations.

43. 42 Section 2-Assessment 1 Discussion Question Which argument for protection seems most convincing? Most suspect? Answers will vary. Most economists believe that carefully considered national defense protectionism is warranted. Suspect is the keep-the- money-at-home argument that discounts the benefits of comparative advantage and downplays the importance of jobs provided by a strong export industry. Click the mouse button or press the Space Bar to display the answer.

44. 43 Section 2-19 Click the mouse button or press the Space Bar to display the information. Trade barriers work only if other countries do not retaliate, causing all countries to suffer.  Restrictive legislation in the past nearly halted international trade.  The Free Trade Movement Various trade agreements have allowed countries to reduce tariffs in cooperation with other nations.  The World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA) are examples of international agencies for promoting freer trade.

45. 44 Section 2-27 Figure 17.3 The Free Trade Movement

46. 45 Section 2-Assessment 1 Discussion Question What, if anything, should a country’s political system have to do with a trade agreement? For example, should a country receive most favored nation status from the United States if it is suspected that some of its workers are slave laborers? Why or why not? Click the mouse button or press the Space Bar to display the answer.

47. 46 Section 2-Assessment 1 Discussion Question Many people feel the United States should take a moral stand against any country that does not promote democratic standards. Others feel that economic exchanges expose the population of less democratic countries to Western standards of democracy and improve the likelihood of their pressing for change. Click the mouse button or press the Space Bar to display the answer.

48. 47 Section 2-Assessment 1 Section Assessment Main Idea Explain why protectionists favor tariffs and quotas. They feel that tariffs and quotas protect domestic industries. Click the mouse button or press the Space Bar to display the answer.

49. 48 Section 2-Assessment 2 Section Assessment (cont.) Describe three barriers to international trade. Barriers to international trade include tariffs to protect less efficient domestic industries and to raise money; quotas to keep foreign goods out; and health inspections on imported foods, requiring license to import. Click the mouse button or press the Space Bar to display the answer.

50. 49 Section 2-Assessment 3 Section Assessment (cont.) List five arguments that are commonly used to support the protectionist argument. Tariffs and quotas maintain national defense, protect infant industries, protect domestic jobs, keep the money home, and help the balance of payments. Click the mouse button or press the Space Bar to display the answer.

51. 50 Section 2-Assessment 4 Section Assessment (cont.) Identify two attempts to facilitate the growth of international trade. GATT and NAFTA are attempts to facilitate the growth of international trade. Click the mouse button or press the Space Bar to display the answer.

52. 51 Section 2-Assessment 6 Section Assessment (cont.) Drawing Conclusions If you were a member of Congress approached by a delegation of autoworkers seeking additional tariff or quota protection, how would you respond? Defend your response. Answers will vary. Click the mouse button or press the Space Bar to display the answer.

53. 52 Section 2-Assessment 7 Section Assessment (cont.) Analyzing Information Explain the infant industries argument. New companies should be protected from foreign competition until they are ready to compete against foreign developed industries. Click the mouse button or press the Space Bar to display the answer.

54. 53 Section 2-Assessment 8 What are the benefits and costs of NAFTA? Section Close

55. End of Section 2 Click the mouse button to return to the Contents slide.

56. 55 Section 3-1 Click the mouse button or press the Space Bar to display the information. Section 3 begins on page 481 of your textbook. Study Guide Main Idea A long-lasting trade deficit affects the value of a nation’s currency and the price and volume of its exports and imports.  Reading Strategy Graphic Organizer As you read the section, complete a graphic organizer similar to the one on page 481 of your textbook by describing the effects of a long-lasting trade deficit.

57. 56 Section 3-2 Click the mouse button or press the Space Bar to display the information. Section 3 begins on page 481 of your textbook. Key Terms –foreign exchange rate  –fixed exchange rate  –flexible exchange rate  –trade deficit  –trade surplus  –trade-weighted value of the dollar –foreign exchange  Study Guide (cont.)

58. 57 Section 3-3 Click the Speaker button to listen to the Cover Story. Click the mouse button or press the Space Bar to display the information. Section 3 begins on page 481 of your textbook. Objectives After studying this section, you will be able to:  Applying Economic Concepts Foreign Exchange Do you have any souvenir foreign currency such as pesos, pounds, or yen? How is this foreign exchange used to finance international trade? Study Guide (cont.) –Explain how foreign currency is used in trade.  –Describe the problem of a trade deficit and the main solution to the problem. 

59. 58 Section 3-4 Click the mouse button or press the Space Bar to display the information. Introduction Trade between nations is similar to exchange between individuals.  The major difference is that each country has its own monetary system, which makes the exchange more complicated.  The value of some currencies, like the Hong Kong dollar, is tied to the value of the U.S. dollar in the hope of simplifying international trade.

60. 59 Section 3-4 Click the mouse button or press the Space Bar to display the information. Did You Know? Archaeologist can track the trade routes of ancient civilizations, such as that of the Phoenicians, by the distinctive goods with which they traded. Merchant records also provide clues into both their languages and their cultures.

61. 60 Section 3-Assessment 1 Discussion Question What kind of major news events, reported worldwide, might drive the value of a country’s currency up or down? Events such as a change in interest rates, the discovery of a major energy source, a disaster that destroyed a major industrial area, a military takeover, or a war. Click the mouse button or press the Space Bar to display the answer.

62. 61 Section 3-7 Click the mouse button or press the Space Bar to display the information. Foreign Exchange Figure 17.4 Foreign exchange is the buying and selling of the currencies of different nations.  The foreign exchange rate is the price of one country’s currency in terms of another country’s currency.

63. 62 Section 3-5 Click the mouse button or press the Space Bar to display the information. Exchange rates are fixed or flexible.  Flexible exchange rates, commonly used today, establish the value of each currency through the forces of supply and demand. Foreign Exchange (cont.)

64. 63 Section 3-15 Click the mouse button or press the Space Bar to display the information. Whether a country has a trade deficit or surplus depends in part on the international value of its currency.  The trade-weighted value of the dollar is an index that shows the strength of the dollar against foreign currencies. Trade Deficits and Surpluses A weaker dollar buys fewer foreign goods.  Deficits and surpluses tend to be self- correcting.

65. 64 Section 3-Assessment 1 Discussion Question When would it be most economical for Americans to travel abroad: when the dollar is weak or when it is strong? Why? A strong dollar allows American dollars to buy more of foreign goods and services because other currencies are weaker by comparison. Click the mouse button or press the Space Bar to display the answer.

66. 65 Section 3-Assessment 1 Section Assessment Main Idea What is the relationship between the international value of the dollar and foreign trade? When the dollar’s value increases, foreign goods become less expensive and U.S. exports become more expensive, and vice versa. Click the mouse button or press the Space Bar to display the answer.

67. 66 Section 3-Assessment 2 Section Assessment (cont.) Click the mouse button or press the Space Bar to display the answer. Describe how foreign exchange is used in trade. It is used in trade to determine the relative value of different currencies.

68. 67 Section 3-Assessment 3 Section Assessment (cont.) Click the mouse button or press the Space Bar to display the answer. Explain how trade deficits correct themselves under flexible exchange rates. They correct themselves through the price system.

69. 68 Section 3-Assessment 5 Section Assessment (cont.) Click the mouse button or press the Space Bar to display the answer. Making Generalizations How do exchange rates influence international trade? When a country’s currency is weak, other countries will import more of that country’s products. When a country’s currency is strong, it will export less.

70. 69 Section 3-Assessment 6 Section Assessment (cont.) Click the mouse button or press the Space Bar to display the answer. Making Comparisons Explain the difference between a fixed exchange rate and a flexible exchange rate. The price of one currency is fixed in terms of another; supply and demand establish the value.

71. 70 Section 3-Assessment 7 Explain the following statement: “A strong dollar resulted in a greater than expected trade deficit last month.” Section Close

72. End of Section 3 Click the mouse button to return to the Contents slide.

73. 72 Chapter Summary 1 Section 1: Absolute and Comparative Advantage Click the mouse button or press the Space Bar to display the information. The United States is extensively involved in international trade, with the average American spending more than $4,200 per year for imports in the form of goods and services.  Absolute advantage means that a country can produce more of a good than another country can.  The basis for trade today is comparative advantage. If people and countries specialize in the things they produce relatively more efficiently, and if they engage in trade to secure the things they do not produce, then total world output will increase.

74. 73 Chapter Summary 2 Click the mouse button or press the Space Bar to display the information. Section 2: Barriers to International Trade Barriers to trade include tariffs, quotas, licensing, health certifications, and voluntary quotas, all of which have been used to restrict the free flow of products.  Protectionists support trade barriers on the grounds of national defense, infant industries, protecting domestic jobs, keeping the money at home, and helping the balance of payments.  Free traders believe that all of these arguments are flawed, with the possible exception of the infant industries argument.  High tariffs were one of the causes of the Great Depression, although the world has moved toward freer trade since then.

75. 74 Chapter Summary 3 Click the mouse button or press the Space Bar to display the information. Section 2: Barriers to International Trade (cont.) The most favored nation clause is important to many countries because it gives them the same tariff reductions that the United States negotiates with other trading nations.  The GATT was established in 1947 and has evolved into the World Trade Organization (WTO), which administers GATT agreements, promotes freer trade, and helps settle disputes between governments.  The North American Free Trade Agreement (NAFTA) will eventually remove all trade barriers among Canada, Mexico, and the United States.

76. 75 Chapter Summary 4 Click the mouse button or press the Space Bar to display the information. Section 3: Financing and Trade Deficits Foreign exchange is the lifeblood of international trade; its value is determined in foreign exchange markets where currencies are bought and sold.  Most countries use a system of floating or flexible exchange rates, meaning that supply and demand determine the currency’s value.  Some smaller countries also use a system of fixed exchange rates, which ties the value of their currency to a major currency like the U.S. dollar.

77. 76 Chapter Summary 5 Click the mouse button or press the Space Bar to display the information. Section 3: Financing and Trade Deficits (cont.) The large trade deficits in the United States in the mid-1980s were partially caused by a strong dollar, resulting in unemployment in the export industries; the country would have had a trade surplus if the value of its exports had exceeded the value of its imports.  Because deficits tend to be self-correcting, most nations no longer design economic policies just to improve the balance of payments.

78. End of Chapter Summary Click the mouse button to return to the Contents slide.

79. 78 1. absolute advantage, comparative advantage 2. balance of payments, trade deficit 3. balance of payments, flexible exchange rates Click the mouse button or press the Space Bar to display the answer. The Chapter Assessment is on pages 488–489. Chapter Assessment 1 Identifying Key Terms For each pair of terms below, write a sentence or short paragraph to show how the two are related. The country that can produce the most of a product has an absolute advantage, but the country that can produce the same product relatively more efficiently has a comparative advantage. A trade deficit is a deficit in the “goods” component of the balance of payments. Flexible exchange rates help countries automatically correct deficits or surpluses in their balance of payments.

80. 79 Chapter Assessment 2 Click the mouse button or press the Space Bar to display the answer. Identifying Key Terms (cont.) 4. trade deficit, trade surplus 5. foreign exchange, flexible exchange rates 6. protectionist, infant industries For each pair of terms below, write a sentence or short paragraph to show how the two are related. When the value of the products a country imports exceeds the value of the products it exports, there is a trade deficit. When the value of the exports exceeds the imports, it is a trade surplus. Under a system of flexible exchange rates, the value of foreign exchange is measured in terms of another country’s currency. A protectionist wants infant industries protected from foreign competition.

81. 80 Chapter Assessment 3 Click the mouse button or press the Space Bar to display the answer. Identifying Key Terms (cont.) 7. protective tariff, revenue tariff 8. tariff, quota 9. Trade deficit, trade-weighted value of the dollar For each pair of terms below, write a sentence or short paragraph to show how the two are related. A protective tariff and a revenue tariff are taxes levied on foreign imports. Tariffs and quotas are barriers to free trade. When the trade-weighted value of the dollar rises, the trade deficit increases.

82. 81 Chapter Assessment 4 Click the mouse button or press the Space Bar to display the answer. Describe the extent of United States involvement in world trade. In 1999 imports of goods and services amounted to about $1,150 billion. Reviewing the Facts

83. 82 Chapter Assessment 5 Click the mouse button or press the Space Bar to display the answer. Describe a case in which the United States might have an absolute advantage over another country in the production of a good. The U.S. would have an absolute advantage if it could produce more of a product. Reviewing the Facts (cont.)

84. 83 Chapter Assessment 6 Click the mouse button or press the Space Bar to display the answer. Reviewing the Facts (cont.) Explain how comparative advantage can make trade between countries of different sizes possible. When it can make a product relatively more efficiently, a smaller country can compete.

85. 84 Chapter Assessment 7 Click the mouse button or press the Space Bar to display the answer. Reviewing the Facts (cont.) Name three barriers to international trade. tariffs, quotas, inspections

86. 85 Chapter Assessment 8 Click the mouse button or press the Space Bar to display the answer. Reviewing the Facts (cont.) Describe five protectionist arguments. See pages 474–476.

87. 86 Chapter Assessment 9 Click the mouse button or press the Space Bar to display the answer. Reviewing the Facts (cont.) Describe the role of the WTO in the free trade movement. settles trade disputes, organizes trade negotiations, and provides training

88. 87 Chapter Assessment 10 Click the mouse button or press the Space Bar to display the answer. Reviewing the Facts (cont.) Differentiate between fixed and flexible exchange rates. fixed: currency is fixed in terms of gold or another currency; flexible: value determined by supply and demand

89. 88 Chapter Assessment 11 Click the mouse button or press the Space Bar to display the answer. Reviewing the Facts (cont.) Explain how deficits can be self- correcting when currency values are flexible. allows for the value of currency to rise and fall; self-correcting through the price system

90. 89 Chapter Assessment 12 Click the mouse button or press the Space Bar to display the answer. Thinking Critically Drawing Conclusions Do you favor protection as a national trade policy? Why or why not? Answers may cite or reject protectionist arguments.

91. 90 Chapter Assessment 13 Click the mouse button or press the Space Bar to display the answer. Thinking Critically (cont.) Making Comparisons What is the difference between a protective tariff and a revenue tariff? Use a graphic organizer similar to the one on page 488 of your textbook to help you organize your answer. A revenue tariff is designed to raise money. A protective tariff protects less efficient domestic industries.

92. 91 Chapter Assessment 14 Click the mouse button or press the Space Bar to display the answer. Thinking Critically (cont.) Analyzing Information Some people feel the United States should return to a system of fixed exchange rates. Defend or oppose this view. Cite examples to support your position. Answers may vary.

93. 92 Chapter Assessment 15 Click the mouse button or press the Space Bar to display the answer. Thinking Critically (cont.) Understanding Cause and Effect Does the protection of inefficient industries hurt an economy? Why or why not? Inefficient industries use resources that might be used more profitably elsewhere.

94. 93 Chapter Assessment 16 Click the mouse button or press the Space Bar to display the answer. Thinking Critically (cont.) Making Comparisons How might the issue of protectionism differ for a worker and a consumer? Use examples to support your argument. People, as consumers, want to buy products at low prices; therefore they may oppose protectionism. As workers, they want their jobs protected.

95. 94 Chapter Assessment 17 Click the mouse button or press the Space Bar to display the answer. Applying Economic Concepts Comparative Advantage Think of a project you recently completed with a friend. How could you have completed the project more efficiently, applying the principle of comparative advantage? Explain. Answers may vary.

96. 95 Chapter Assessment 18 Click the mouse button or press the Space Bar to display the answer. Applying Economic Concepts (cont.) Quotas You have just started a business manufacturing toothbrushes. Would you favor a quota on imported toothbrushes? Why or why not? Answers may vary.

97. 96 Chapter Assessment 19 Click the mouse button or press the Space Bar to display the answer. Applying Economic Concepts (cont.) Foreign Exchange Explain how doubling the $400 tax-free limit on goods brought in from abroad by American citizens would affect the balance of payments. It would increase imports, thereby increasing the trade deficit.

98. 97 Chapter Assessment 20 Click the mouse button or press the Space Bar to display the answer. Applying Economic Concepts (cont.) Interdependence How does the lack of certain raw materials force nations to become interdependent? Trade is the only way to obtain essential raw materials.

99. 98 Chapter Assessment 21 Arcania has the capacity to produce 6,000 televisions or 4,000 radios per month. Esoterica has the capacity to produce 4,000 televisions and 3,000 radios per month. Arcania specializes in televisions and Esoterica specializes in radios. Explain why. Arcania has a comparative advantage in televisions because it does a relatively better job of producing televisions. Esoterica has a comparative advantage in radios. Click the mouse button or press the Space Bar to display the answer.

100. End of Chapter Assessment Click the mouse button to return to the Contents slide.

101. Economic Concepts 1

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103. Focus Activity 1.2

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105. Focus Activity 2.2

106. Focus Activity 3.1 Continued on next slide.

107. Focus Activity 3.2