INTERNATIONAL ECONOMICS WHY DO COUNTRIES TRADE? 1. GET THINGS WHEN THEY DON’T HAVE RESOURCES TO PRODUCE IT THEMSELVES 2. SPECIALIZE-EFFICIENCY-COMPARATIVE ADVANTAGE 3. LOWER PRICES-COMPETITION

COMPARATIVE ADVANTAGE VERSUS ABSOLUTE AVANTAGE *COUNTRIES SHOULD PRODUCE WHAT THEY HAVE A COMPARATIVE ADVANTAGE IN PRODUCING AND TRADE FOR OTHER GOODS WHY? TRADE SHOULD BE BASED ON WHAT YOU PRODUCE MORE EFFIECIENTLY( COMPARATIVE ADVANTAGE) NOT ON ABILITY TO PRODUCE MORE OF A GOOD THEN ANOTHER COUNTRY(ABSOLUTE ADVANTAGE) *READING ABOUT COFFEE BEANS

TRADE BARRIERS VERSUS FREE TRADE WHY TRADE BARRIERS: 1. PROTECT DOMESTIC INDUSTRIES 2. REDUCE DEPENDENCE ON ANOTHER COUNTRY 3. POLITICAL REASONS-CUBA 4. PROTECT NEW DOMESTIC INDUSTRIES PROTECTIONISM- PROTECT JOBS AT HOME *TRADE BARRIERS LEAD TO HIGHER PRICES *TYPES OF BARRIERS- TARIFFS, EMBARGO, LICENSING, QUOTAS, AND SUBSIDIES *ALL TRADE IS DONE BY FIRMS BUT GOVERNMENTS RESTRICT

FREE TRADE FREE TRADE: 1. ELIMINATION OF TRADE BARRIERS-HAS BEEN INCREASING THROUGHOUT REGIONS IN THE WORLD EXAMPLES-TRADING BLOCKS-NAFTA, EU, AND ASEAN-ELIMINATES TARIFFS AMONG MEMBERS *GOVERNMENT DECISIONS TO REDUCE BARRIERS AND FORM TRADING BLOCKS *INCREASE THE GLOBAL STANDARD OF LIVING

EXCHANGE RATES CURRENCY: 1. EXCHANGED IN FOREX MARKET 2. TRADED BY INDIVIDUALS AND FIRMS 3. FLOAT-BASED ON DEMAND AND SUPPLY 4. CURRENCY VALUES *INCREASE IN DEMAND BY FOREIGNERS WILL INCREASE VALUE OF DOLLAR-IT WILL APPRECIATE-AMERICAN GOODS WILL COST FOREIGNERS MORE MONEY *AN INCREASE IN SUPPLY OF DOLLAR ON FOREX MARKET WILL CAUSE DOLLAR TO DEPRECIATE-FOREIGNERS WILL NOW GET MORE DOLLARS FOR THEIR CURRENCY THAN BEFORE-AMERICAN GOODS WILL COST LESS

BALANCE OF PAYMENTS SUM OF TRANSACTIONS BETWEEN RESIDENTS OF ONE NATION AND RESIDENTS OF ALL FOREIGN NATIONS *INCLUDES EXPORTS/IMPORTS, GOODS/SERVICES, TOURIST EXPENDITURES, PURCHASE/SALE OF FINANCIAL OR REAL ASSETS, AND INTEREST AND DIVIDENDS 2. CURRENT ACCOUNT-RECORDS ON TRADE-TRADE SURPLUS THEN EXPORTS GREATER THAN IMPORTS(POSITIVE BALANCE)-TRADE DEFICIT-IMPORTS GREATER THAN EXPORTS(NEGATIVE BALANCE) CAPITAL AND FINANCIAL ACCOUNT-MONEY FLOWING OUT VERSUS INTO THE COUNTRY-BUYING OF GOV’T BONDS, STOCK IN A FOREIGN COMPANY, DIVIDENDS FROM A FOREIGN COMPANY