3Advantages of International Trade Allows a country to specializeIncreases efficiencyMore goods and servicesLower prices for consumersGreater diversity of goods and servicesHigher standard of living
4Two Types of Advantage Absolute Advantage Country A can produce MORE of a good than country BEx. Brazil (sugar) and USA (cars)Large countries tend to always have absolute advantage over small onesComparative AdvantageCountry A can produce a good more EFFICIENTLY than country BEx. Costa Rica (sugar) and USA (cars)Large countries can still benefit from trade with small ones because of comparative advantage
5Comparative Advantage and Opportunity Cost Why would a big country trade with a small country if it had an absolute advantage in everything?COMPARATIVE ADVANTAGE!!!!If we try to produce all of our own sugar, pineapples, and coffee, it would be inefficient and too expensive (BIG opportunity costs)Hello, Costa Rica!Two countries WON’T trade if the opportunity cost is the same (no comparative advantage)
6An EOCT type questionThe table below represents the amount of wheat and sugar that Brazil and the USA can produce in one day (in thousands).Who has an absolute advantage in wheat? In sugar?Who has a comparative advantage in wheat? In sugar?WHEAT SUGARUSABRAZIL
7Trade Balances Balance of Trade Value of all goods and services exported minus value of all importedTrade surplus or Trade deficitBalance of PaymentsIncludes balance of trade AND a country’s official reserves in its own and other countries’ currencies
8Trade DeficitsTrade deficits cause the international value of our dollar to fall. That means the dollar is worth less than other currencies. WHY do trade deficits do this?
10Barriers to Trade: Protectionism Tariff: tax on an imported goodsQuota: limit on imported goodsEmbargo: prohibiting an importStandards: safety rules on importsSubsidy: Government payments to their own producers of a productCosts? (remember, government actions that impact economics produce floors or ceilings)Benefits?
11Trend More International Trade NAFTA: North American Free Trade Agreement (Canada, Mexico, USA)EU: European Union (most European Nations)
12Exchange Rates One US Dollar In US Dollars Euro .71 1.40 International Trade Currency exchangesExchange rate: price of one country’s currency compared to another’sRates change as macroeconomic conditions changeIf you travelled to Europe with $100 and exchanged it into Euros, how many Euros would you get?US Dollar Exchange RateOne USDollarIn US DollarsEuro.711.40
13Dollar to Euro Conversion IF YOU WANTED TO GO ON A TRIP TO PARIS WHAT WOULD HAVE BEENTHE BEST TIME TO TRAVEL?
14Euro to Dollar Conversion IF YOU ARE A GERMAN, WHAT WOULD HAVE BEEN THE BEST TIMETO GO TO DISNEYWORLD ON VACATION?
15Exchange rate questions High demand for US exports causes what to happen to international value of dollar?If the USA demands increasing amounts of imports what will happen to international value of dollar?Which kinds of American businesses are WINNERS when the international value of the dollar falls? (weak dollar)