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Trading with other Nations
Economics Chapter 18 Trading with other Nations
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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
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Comparative Advantage
Ability of a country to produce a product at a lower opportunity cost than another country.
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Section 2: Financing World Trade
Fixed Exchange Rates- Pay in that countries currency Foreign Exchange markets- conversion of currency IMF supported fixed rates of exchange. Devaluation to promote exports Today a more flexible system
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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
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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
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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.
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