The Main Idea – Chapter 7
This chapter discusses how business is conducted
internationally.
7.1 discusses the trading of goods and services
between countries and how governments protect
their producers
7.2 describes the growing economic
interdependence among countries
Objectives:
- Describe how the concepts of absolute and
comparative advantage determine what countries
produce.
- Explain why businesses export and import
- Discuss how foreign exchange rates affect imports
and exports
Quick!
Get a piece of paper
In one minute…
Write as many foreign countries as you can
Domestic vs International Business
•What is domestic business?
•It is the making, buying, and selling of goods and
services within a country
•What is international business?
•Business activities needed for creating, shipping,
and selling goods and services across national
borders.
Who can guess how many countries the US
trades with?
Class exercise
Go to www.bls.gov/ooh
Research and discover at least three jobs that deal with
international business
On a piece of paper, list the three jobs and tell me:
1. Summarize the nature of the work
2. What the job outlook is
3. Summarize what the earnings (hourly wage or salary)
are for the position.
4. Put in bin when finished.
International Trade
What is the main reason for international
trade?
What impact does it have on the US
economy?
International trade
Most of the world today
depends on international
trade to maintain its
standard of living.
International trade
The exchange of goods
and services by different
countries.
Absolute and Comparative Advantage
•Absolute Advantage•Exists when a country can produce a
good/service at a lower cost than other countries.
•Examples – South America has AA with coffee
production and Saudi Arabia has AA in oil
production. What do we have an AA in?
Absolute advantage
The US has an absolute
advantage in: grains,
automobiles, metals
including aluminum and
copper, electrical and
telecommunications
equipment and food.
Absolute advantage
The ability to produce
more of a good than
another producer.
Absolute and Comparative Advantage
•Comparative Advantage•A situation in which a country specializes in the
production of a good/service at which it is relatively
more efficient at producing
•Example - A 7’ tall rabbi and a 5’ tall priest walk into a
strawberry field lined with apple trees. They must harvest
both crops before they can meet their maker. Who picks
what?
The law of comparative advantage
Individuals, companies,
and countries should
specialize in what they do
best.
Comparative advantage
Producers should produce
the goods they are most
efficient at producing and
purchase from others the
goods they are less
efficient at producing.
Exporting and Importing
What’s the difference?
Who is the largest exporting country in the
world?
– No. Not China.
Its us, the US! $700B goods/services a
year.
Who is the largest importing country?
Yep! The US – about $900B
Exporting
Some things the US
exports:
Factory/farm machinery,
food, agricultural products,
chemicals, fertilizers,
medicines, plastics,
movies, tv shows, books,
magazines.
exports
Goods and services sold
to other countries
*1 of every 6 jobs in the
US depends on
international business!
Exporting
Why would a company want to export
products?
Diversification- engaging in a variety of
operations.
Importing
Did you know that
bananas, cocoa, spices,
tea, silk and crude rubber
are 100% imported from
other countries?
Imports
Goods and services
purchased abroad
Imports (cont’d)
The US buys about 2050% of:
Sugar
Crude oil
Leather gloves
Fish
Dishes
Carpets
Sewing machines
On a piece of paper…
Please list the top ten imports and exports of
the US and list the monetary value of each.
Measuring Trade Relations
Why do we work and have jobs?
With that money we buy goods/services that
we need. If we spend more than we earn, we
get into financial troubles (debt)….nothing
different than with countries.
Balance of Trade
If a country exports
(sells) more than it
imports (buys), it has
a trade surplus.
If a country imports
more than it exports,
it has a trade deficit ,
which is unfavorable
Balance of trade
The difference between
the value of a country’s
total exports and total
imports
(total exports-total
imports=balance of trade)
International Currency
• Russia uses the ruble, the European Union
uses the euro, Brazil the real, India the
rupee, and Saudi Arabia the riyal.
How can all these different countries accept
payment from another if they don’t use the
same money?
Foreign Exchange Rates
• The process of exchanging one currency for
another occurs in the foreign exchange
market
• Bunch of banks that buy currencies and
resell other ones.
Balance of payments
Most large banks provide
currency services for
businesses and
consumers.
Supply and demand
affects the value of
currency.
exchange rate
is the value of currency in
one country compared
with the value in another.
Exchange rate calculator
Find an online exchange rate calculator
How is the U.S. Dollar doing against the
EURO?
Protectionism
Formal trade barriers
are political actions by
the government
Informal trade barriers
are when the culture,
traditions, and religion
of a country hinder
trade
Trade barriers
Government actions can
create restrictions to free
trade
International trade barriers/Protectionism
Tariff
Quota
Embargo
Protectionism
Boston tea party – what
happened?
Many people believe that
tariffs should be used to
protect US jobs from
foreign competition. What
would happen to the
prices at the store for us?
tariff
A tax that a gov’t places
on certain imported
products
Protectionism
Countries do this to
regulate international trade
Why would a country want
to set a quota on
international trade?
quota
When a gov’t sets a limit
on the quantity of a
product that may be
imported or exported
Protectionism
Embargos can be placed on an
entire country…anyone know
who we have an embargo
against?
Cuba
Gov’ts enact these to protect
their products/services more
than a quota or tariff can
embargo
When a gov’t stops the
export or import of a
product completely
As of October, 2007, the United States has
sanctions (embargos) against:
–
–
–
–
–
–
–
–
–
–
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Colombia, no drug-related exports, since 1972 (see Colombia-United States
relations)
Côte d'Ivoire/Ivory Coast, since 1986 (see Côte d'Ivoire – United States relations)
Cuba, since 1962 (see United States embargo against Cuba)
Democratic Republic of the Congo, since 1998 (see Democratic Republic of the
Congo – United States relations)
Iran, since 1979 (see Sanctions against Iran)
Republic of the Congo (see Republic of the Congo-United States relations)
Somalia, since 1990 (supplies arms to the Transitional Federal Government, but no
general trade. See Somalia-United States relations)
Myanmar, since 1997 (see Burma – United States relations)
North Korea, since 1950 (see North Korea – United States relations)
Sudan, since 2002 (see Sudan – United States relations)
Syria, since 1986 (see Syria – United States relations)
Source: www.Wikipedia.com