2. Defined: International trade is the exchange of capital, goods, and services across international borders or territories. Important: When we say countries “trade”, we mean they buy stuff from each other.

3. International Trade dates back at least 9000 years. The invention of ships that could travel great distances made trade possible. Today, with modern and efficient means of transportation, trade is critical to a countries wealth.

4. Why do countries trade with each other? When they do not have the resources or capacity to satisfy their wants and needs. Countries that are good at making one thing, produce a lot of it, so they can sell the surplus and use the $$$ to buy things they are not good at making.

5. Specialization: When a country or person focuses on “being good” at one thing in order to receive $$$. Then they use that $$$ to purchase things from people that have specialized in something else. For example, I specialized in finance, received a salary from Citigroup, and used that $$$ to have someone fix my car.

6. 2 Key terms you must know to understand trade in the coming weeks: Import: A good that is brought in from another country to be sold. Export: A good that is sent to another country to be sold. (Think of an ex- girlfriend…you sent them away!)

7. Absolute Advantage: When one country can produce more of a good than another country. Who has the absolute Advantage in cars/trucks?

8. True or False: If a country has an absolute advantage in producing every product, there is no need for them to trade. False. Why? Comparative Advantage: (David Ricardo) The ability to produce a good at a lower opportunity cost than a trading partner.

9. The following table shows the amount of shirts and units of corn that can be produced by Japanese and American workers in one hour. According to comparative advantage, who should produce shirts and who should produce corn? USJPY Shirts108 Corn5024

10. Answer: To make 1 shirt the US has to give up producing 5 units of corn (50/10)…So it “costs” the US 5 units of corn to make 1 shirt. To make 1 shirt Japan has to give up producing 3 units of corn (24/8)…So it “costs” Japan 3 units of corn to make 1 shirt. Therefore, Japan should make shirts and the US should make corn because it would cost the US more $ to make shirts.