18 International Trade


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18 International Trade

  1. 1. Objective: Analyze the role of international trade in our economy
  2. 2. Reasons for International Trade <ul><li>Sometimes people need things that are not made in their home country </li></ul><ul><li>Some countries have an advantage in making certain goods but not others </li></ul><ul><li>This means it’s cheaper to buy foreign goods than goods made here </li></ul>
  3. 3. Absolute Advantage <ul><li>A country has an absolute advantage when it can produce a good using fewer resources than any other country and at a lower cost </li></ul><ul><li>Brazil has an advantage over the U.S. in coffee production </li></ul>
  4. 4. Specialization <ul><li>Is when a country focuses on producing just one good or a few </li></ul><ul><li>Countries decide to specialized by looking at their economy and seeing what is easiest to produce </li></ul><ul><li>Brazil has specialized in producing coffee </li></ul>
  5. 5. Comparative Advantage <ul><li>Most countries have a combination of absolute and comparative advantages </li></ul><ul><li>A comparative advantage is when a country can make one good cheaper then another </li></ul>
  6. 6. Financing World Trade <ul><li>Exchange Rate- is the price of one nation’s currency in terms of another nation’s currency </li></ul><ul><li>Foreign Exchange Market- a market dealing in buying and selling foreign currency for businesses that want to import goods </li></ul><ul><li>Fixed Rate of Exchange- is when a nation sets the value for its currency </li></ul><ul><li>Flexible Exchange Rate-is when supply and demand sets the value of a countries currency </li></ul>
  7. 7. Barriers to International Trade <ul><li>Countries compete against each other for an advantage </li></ul><ul><li>Sometimes countries will place barriers against foreign trade </li></ul><ul><li>Countries limit trade to protect native businesses and jobs against foreign competition </li></ul>
  8. 8. Tariffs, quotas, and Embargos. Oh My!!!! <ul><li>Tariffs are taxes on goods brought into the country </li></ul><ul><li>Import quotas are limits set on the number of foreign goods that can be brought into the country </li></ul><ul><li>Embargos are laws that cuts off trade with another country </li></ul>
  9. 9. Improving International Trade <ul><li>Free trade has no limits on it set by the government </li></ul><ul><li>The U.S., Canada, and Mexico are very close trading partners </li></ul><ul><li>In 1993 all three countries sign the North American Free Trade Agreement (NAFTA) to increase free trade </li></ul>
  10. 10. Review <ul><li>Name three ways to restrict imports. </li></ul><ul><li>Ans. Tariffs, Quotas, and Embargoes </li></ul><ul><li>What does NAFTA stand for? </li></ul><ul><li>Ans. North American Free Trade Agreement </li></ul><ul><li>When does a country have an absolute advantage? </li></ul><ul><li>Ans. when it can produce a good using fewer resources than any other country and at a lower cost </li></ul>