1. Trading Goods and Services
SSEIN1a, b, c

2. What is specialization?
Doing one job or producing one product/service
Why?
Increases the total amount of things a society can produce and leads to an efficient use of resources.

3. What is voluntary exchange?
Buying goods and services from others that we cannot produce ourselves

4. How do we decide what to produce?
Depends on its resources.
Example: land, water, metals, and climate.
Also, educated workers and capital goods (computer/machine)

5. What is trade? Nations sell products to other nations.
Exports: goods and services sold to other nations
Imports: goods and services bought from other nations
Goal: increase the amount and variety of goods available to all nations.

6. Absolute Advantage
Absolute advantage: One nation can produce more output with the same resources as the other.
The U.S. can produce more sugar and fertilizer than Nicaragua.

7. Comparative Advantage
Comparative Advantage: a nations ability to make something at a lower opportunity cost than another nation can.
Give up
Make
100= 1.25
U.S. to make 1 sugar= Opportunity Cost 80
1 Fertilizer= Opportunity Cost 80=.8
100
Nicaragua to make 1 sugar= Opportunity Cost 50= .7 70
1 Fertilizer= Opportunity Cost 70= 1.4 50
You make what benefits you.

8. Practice Problem Which nation has an absolute advantage? U.S.TV
Computer
U.S.
100 20
Japan 80 15
Total
180 35
Which nation has an absolute advantage?
U.S.
Which nation has a comparative advantage in making computers?
Which nation has a comparative advantage in making TVs?

9. Balance of Trade
balance of trade: the relationship between a nation’s imports and exports
trade surplus: a nation exporting more than it imports
Example: The US exports $5 million and imports $3 Million
trade deficit: the result of a country importing more than it exports
Example: Mexico exports $4 million and imports $7 million
credit: any transaction that brings money into a country
debit: any transaction that takes money out of a nation
balance of payments: the difference between the total amount of money coming into a nation and the total amount