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Trading Goods and Services

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Presentation on theme: "Trading Goods and Services"— Presentation transcript:

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

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