1. Trading with other Nations
Economics Chapter 18
Trading with other Nations

2. 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

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

4. 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

5. 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

6. 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

7. 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.