Trading with other Nations Economics Chapter 18 Trading with other Nations

Section 1: The Benefits of World Trade Trade and specialization lead to economic growth for individuals, regions, and nations Benefits of Trade Imports Exports Differing factors of production Absolute Advantage- Ability to produce more output than another country. Specialization

Comparative Advantage Ability of a country to produce a product at a lower opportunity cost than another country.

Section 2: Financing World Trade Fixed Exchange Rates- Pay in that countries currency Foreign Exchange markets- conversion of currency 1945-1970 IMF supported fixed rates of exchange. Devaluation to promote exports Today a more flexible system

Flexible exchange rates Supply and demand set exchange rates on a daily basis Depreciation- fall in the price of a currency Balance of Trade- difference between imports and exports

Section 3: Restrictions on World Trade Three ways to Restrict Imports Tariffs- Tax on imports Revenue tariff- just to raise money Protective tariff- tax to decrease imports and protect domestic producers Quotas- Set an amount that can be brought in Embargoes- Restriction for a particular country (Cuba) Protectionists- want to protect domestic goods

International Trade Agreements The World Trade Organization- 147 Nations, Worlds largest trade agreement Regional Trade Agreements NAFTA The Central American Free Trade Agreement (CAFTA) European Union- 25 European countries, larger than the U.S.