GLOBAL ECONOMICS Bell Work: Why do countries trade with each other?

Why Countries Trade Based on Opportunity Cost Best use of resources, more efficient to produce one over the other Both people and nations benefit from trade

Absolute Advantage When a country can produce more of a good with the same resources that another country can ShoesShirts United States10075 Canada80100 Total ShoesShirts United States2000 Canada0200 Total200

Comparative Advantage When a country has an absolute advantage with 2 products but still benefits from trade. Based on lower opportunity cost. ShoesShirts Unites States10080 Canada8075 Total ShoesShirts United States200 (190)0 (8) Canada0150 Total200(190)150 (158) By Adjusting the US production of Shoes/Shirts there is an increase in production of both

Advantages of Trade 1. Allows nations to specialize in producing a limited number of goods 2. Allows for nations to consume large variety of goods 3. Dramatic change in standard of living

International trade & taxes Imports – Products made in another country that are sold here Exports – Products made in the US that are sold outside of this country Tariff – Tax on imported goods Import Quota – limits the quantity that can be purchased from another country

Exchange Rates – the value of one currency to another What would happen if the US Dollar increases in value more than other countries? Exports to other countries would decrease, because they could not afford our products

Trade Deficit/Surplus Trade Deficit – importing more goods and services than the country exports Lower labor costs, high demand for products, Trade Surplus – Exporting more than importing Protectionism – not allowing too many imports in, by setting up tariffs and import quotas. (usually command economies) -allows countries to produce their own goods -could lead to higher prices/lower quality