2 What is specialization? Doing one job or producing one product/serviceWhy?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 nationsImports: goods and services bought from other nationsGoal: increase the amount and variety of goods available to all nations.
6 Absolute AdvantageAbsolute 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 upMake100= 1.25U.S. to make 1 sugar= Opportunity Cost 801 Fertilizer= Opportunity Cost 80=.8100Nicaragua to make 1 sugar= Opportunity Cost 50= .7701 Fertilizer= Opportunity Cost 70= 1.450You make what benefits you.
8 Practice Problem Which nation has an absolute advantage? U.S. TVComputerU.S.10020Japan8015Total18035Which 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 Tradebalance of trade: the relationship between a nation’s imports and exportstrade surplus: a nation exporting more than it importsExample: The US exports $5 million and imports $3 Milliontrade deficit: the result of a country importing more than it exportsExample: Mexico exports $4 million and imports $7 millioncredit: any transaction that brings money into a countrydebit: any transaction that takes money out of a nationbalance of payments: the difference between the total amount of money coming into a nation and the total amount