1. Lead off 5/1
Should we buy things from other countries? Why or why not? Should the government do things to discourage/prohibit us from buying things from other countries? Why or why not?

2. International Economics

3. I. International Trade Distribution of Resources and Specialization
Resources are not evenly distributed
Countries tend to specialize based on what resources are available
Trade for everything else
Absolute vs Comparative Advantage
Absolute Advantage – one country can produce more than another country
Comparative Advantage – one country can produce at less opportunity cost
Explains why a country would trade even if it has absolute advantage in both items
Effects on National Economies
Benefits of Free Trade

4. I. International Trade Distribution of Resources and Specialization
Absolute vs Comparative Advantage
Effects on National Economies
Exports (going out) – increased demand (higher prices but more jobs)
Imports (coming in) – increased supply (lower prices)
Employment – jobs will shift toward what a country’s specialty is
Benefits of Free Trade
Higher productivity
Lower prices
Increased standard of living

5. II. Trade Barriers Types Impact Reasons for Protectionism
Quota – limit on the number of exports
Dumping – selling exports at lower prices than domestically
Tariff – tax on imports
Revenue – low; in order to make money for the government
Protective – high; increase prices so that people don’t buy the import
Voluntary Export Reduction – country chooses to limit an export to avoid tariff or quota
Embargo - law cutting off all trade with a country
Informal restrictions (licensing, regulations, health and safety requirements)
Impact
Reasons for Protectionism

6. Reasons for Protectionism (and free trade response)
Types
Impact
Higher prices
Trade wars – restrictions from one country met with restrictions from another
Reasons for Protectionism (and free trade response)
Protectionism – use of trade barriers to protect a country’s economy
Free trade – no barriers
Protect jobs – lack of foreign competition could keep businesses from having to lay off workers (keeps those jobs at the cost of high prices for everyone else)
Protect infant industries – allow new industries grow with temporary protection (how long?)
National security – being dependent on others for important resources/products puts country at risk (what is important?)

7. Lead off 5/4
Why would you need to exchange currency if you were going on a trip to another country?

8. III. Value of Foreign Trade
Currency Exchange
Foreign exchange market – allows currency to be bought and sold (makes international trade possible)
Foreign exchange rate – price of currency vs. other currency (ex: 1 US dollar might equal 2 Euros)
Strong vs. Weak
Strong – worth more compared to other currencies
Weak – worth less compared to other countries
Balance of Trade
Surplus – more exports than imports
Deficit –more imports than exports
Balance of Trade and Currency Exchange

9. Balance of Trade and Currency Exchange
Surplus – more exports than imports
Deficit –more imports than exports
Balance of Trade and Currency Exchange
Surplus
Makes currency stronger
Domestic products become too expensive – decreases exports
Foreign products become relatively cheaper – increases imports
Eventually moves toward deficit
Deficit
Makes currency weaker
Domestic products become relatively cheaper – increases exports
Foreign products become relatively more expensive – decreases imports
Eventually moves toward surplus

10. IV. International Institutions
EU (European Union)– groups of several European countries that have combined economies and currency (Euro)
NAFTA (North American Free Trade Agreement)– promotes free trade between US, Mexico, and Canada
WTO – promotes free trade among 150 member nations
OPEC (Organization of Petroleum Exporting Countries) – cartel of countries that work together to control a large supply of the world’s oil

11. Lead off 5/9 Why are some countries more wealthy than others?
How can a less wealthy country improve its economy?

12. V. Economic Development
Levels of Development
Developed
High standard of living
Market economy
Industrialized
Examples: US, Canada, western Europe, Japan, South Korea
Transitional
Going from command to market
Examples: China, Russia, eastern Europe
Less than developed
Standards of Development
Factors Affecting Development

13. V. Economic Development
Levels of Development
Developed
Transitional
Going from command to market
Examples: China, Russia, eastern Europe
Less than developed
Low standard of living
Less industry
Very little infrastructure
Examples: Central and South America, Africa, southeast Asia
Standards of Development
Factors Affecting Development

14. V. Economic Development
Levels of Development
Standards of Development – how economists measure economic development
Per Capita GDP
Health - infant mortality and life expectancy
Education - literacy rate
Consumption -TV, phone, computer, cell phone
Energy use –electricity
Labor Force - ratio of manufacturing and service to agriculture
Factors Affecting Development

15. V. Economic Development
Levels of Development
Standards of Development
Factors Affecting Development
Human capital – healthy, educated workers
Physical capital – machines and technology
Stable governments
Stable prices
Protected property rights
Open international trade
Social and economic mobility – ability of people to improve class
Limited government
Lack of corruption
Foreign investment and assistance

16. VI. Economic Transitions
Examples
Russia/Eastern Europe – change to capitalism after the fall of the Soviet Union
China – limited allowance of capitalism
Challenges (Especially for Soviet Union/Eastern Europe)
Poor infrastructure – roads, communication, ports, etc.
Privatization – who gets to own the formerly government owned property?
Price increases (although prices do eventually stabilize)
Corruption – former government officials often rig the system and criminals become powerful
It takes time getting used to freedom (some wish for the old days)