1. International Trade And Exchange Rates
International Economics
International Trade
And
Exchange Rates

3. Advantages of International Trade
Allows a country to specialize
Increases efficiency
More goods and services
Lower prices for consumers
Greater diversity of goods and services
Higher standard of living

4. Two Types of Advantage Absolute Advantage
Country A can produce MORE of a good than country B
Ex. Brazil (sugar) and USA (cars)
Large countries tend to always have absolute advantage over small ones
Comparative Advantage
Country A can produce a good more EFFICIENTLY than country B
Ex. Costa Rica (sugar) and USA (cars)
Large countries can still benefit from trade with small ones because of comparative advantage

5. Comparative 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)

6. An EOCT type question
The 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 SUGAR
USA
BRAZIL

7. Trade Balances Balance of Trade
Value of all goods and services exported minus value of all imported
Trade surplus or Trade deficit
Balance of Payments
Includes balance of trade AND a country’s official reserves in its own and other countries’ currencies

8. Trade Deficits
Trade 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?

10. Barriers to Trade: Protectionism
Tariff: tax on an imported goods
Quota: limit on imported goods
Embargo: prohibiting an import
Standards: safety rules on imports
Subsidy: Government payments to their own producers of a product
Costs? (remember, government actions that impact economics produce floors or ceilings)
Benefits?

11. Trend More International Trade
NAFTA: North American Free Trade Agreement (Canada, Mexico, USA)
EU: European Union (most European Nations)

12. Exchange Rates One US Dollar In US Dollars Euro .71 1.40
International Trade Currency exchanges
Exchange rate: price of one country’s currency compared to another’s
Rates change as macroeconomic conditions change
If you travelled to Europe with $100 and exchanged it into Euros, how many Euros would you get?
US Dollar Exchange Rate
One US
Dollar
In US Dollars
Euro
.71
1.40

13. Dollar to Euro Conversion
IF YOU WANTED TO GO ON A TRIP TO PARIS WHAT WOULD HAVE BEEN
THE BEST TIME TO TRAVEL?

14. Euro to Dollar Conversion
IF YOU ARE A GERMAN, WHAT WOULD HAVE BEEN THE BEST TIME
TO GO TO DISNEYWORLD ON VACATION?

15. Exchange 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)