Warm Up
Write about a way you saw economics at work
over the holiday break. ex: news report,
shopping...etc
International Trade
Imports and Exports
Exports - the goods and services that a nation
produces and then sells to other nations
Imports – the goods and services that a nation
buys from other nations
Trade deficit – when imports exceed exports
Trade surplus – when exports exceed imports
The Basis for Trade
Without international trade many products
would not be available to the world market.
Example: Bananas or coffee, oil, clothing…
In many cases it may be cheaper for a country
to import a product than to manufacture it.
Absolute and Comparative
Advantage
Absolute advantage – when a country is able to
produce more of a given product than another
country can.
Comparative advantage – the ability to produce
a product relatively more efficiently, or at a
lower opportunity cost
The concept of comparative advantage is based
on the assumption that everyone will be better off
producing the products they produce relatively
best
Restricting International Trade
Tariff – a tax placed on imports (make the
prices of imports higher)
Types:
Protective tariff – high enough to protect lessefficient domestic industries
Revenue tariff – high enough to generate
revenue for a govt without actually prohibiting
imports (before the Civil War tariffs were the
chief source of revenue for the federal govt)
Restricting International Trade
Quota – a limit placed on the quantities of a
product that can be imported. Used to protect
domestic products.
Other Barriers
Requiring a license to import
Health inspection of foods – European
countries resist genetically modified foods and
hormone fed beef from the U.S.
The Debate over Free Trade
Free trade - ability to trade with little or no trade
restrictions between countries.
Make a list of Pros and Cons of Free
Trade
Pros
Cons
Arguments for Free Trade
A. If countries use tariffs and quotas against each other, all
countries suffer because countries will not have access
to cheaper products and raw materials from other
countries
B. The countries that can produce the goods most
efficiently will do so if there are no trade barriers, thus
bringing about the lowest costs of all goods for
everyone
C. Prices of goods will be cheaper because they will be
produced in a country that can make them the cheapest
and there will be no tariffs to increase the prices
Arguments for Free Trade cont..
D. World Trade Organization (WTO) – an international
agency that administers trade agreements and trade
disputes between governments; provides technical
assistance and training for developing countries
E. North American Free Trade Agreement (NAFTA) – an
agreement to reduce trade barriers between U.S.,
Mexico, and Canada; started in 1993
F. Central American Free Trade Agreement (CAFTA) –
free trade agreement between countries of North and
Central America
Arguments against Free Trade
A. Tariffs and quotas protect domestic jobs from
cheap foreign labor
B. Multinational corporations benefit by paying
poverty level wages and setting up factories in
countries that are hostile to labor and
environmental regulations
C. The WTO rulings supersede laws and regulations of
individual countries therefore curtailing a nation’s
sovereignty
D. The WTO’s rulings favor large industrialized
countries and their corporations over the needs of
developing countries
Arguments against Free Trade
E. Could potentially hurt national defense; without trade
barriers a country could become so specialized that it
would end up becoming too dependent on other countries
F. Emerging industries should be protected so that they can
gain strength and experience to compete on the world
market
G. NAFTA has caused a decrease in American
manufacturing jobs and an increase in “sweatshop labor”
in Mexico
Fixed and Flexible (floating)
Exchange Rates
Look up Fixed and Flexible exchange rates and
write a summary contrasting the two.
Assignment:
Write a 1-2 page paper giving your stance on
Free Trade. Are you in favor or opposed to
Free trade? Why or why not? What are you
thoughts on NAFTA...etc.