ECONOMICS STUDY GUIDE, CHAPTER SEVENTEEN: INTERNATIONAL TRADE
GEORGIA PERFORMANCE STANDARDS (your objectives
for this chapter):
SSEIN1 Explain why individuals, businesses, and governments trade goods and services.
a. Define and distinguish between absolute advantage and comparative advantage.
b. Explain that most trade takes place because of comparative advantage in the production of a good or service.
c. Explain the difference between balance of trade and balance of payments.
SSEIN2 Explain why countries sometimes erect trade barriers and sometimes advocate free trade.
a. Define trade barriers as tariffs, quotas, embargoes, standards, and subsidies.
b. Identify costs and benefits of trade barriers over time.
c. List specific examples of trade barriers.
d. List specific examples of trading blocks such as the EU, NAFTA, and ASEAN.
e. Evaluate arguments for and against free trade.
SSEIN3 Explain how changes in exchange rates can have an impact on the purchasing power of individuals in the United
States and in other countries.
a. Define exchange rate as the price of one nation’s currency in terms of another nation’s currency.
b. Locate information on exchange rates.
c. Interpret exchange rate tables.
d. Explain why, when exchange rates change, some groups benefit and others lose.
KEY TERMS
absolute advantage the ability to produce more of a given product
using a given amount of resources (p. 443)
appreciation an increase in the value of a currency (p. 459)
balance of trade the relationship between a nation’s imports and
exports (p. 462)
balance of payments the record of payments and receipts of the
residents of one country in their transactions with residents of other
countries
comparative advantage the ability to produce a product most
efficiently given all other products that could be produced (p. 444)
customs duty a tax on certain items purchased abroad (p. 450)
euro a single new currency that replaces individual currencies among
members of the European Union (p. 454)
European Union (EU) a regional trade organization made up of
European nations (p. 454)
exchange rate the value of a foreign nation’s currency in terms of the
home nation’s currency (p. 458)
export a good that is sent to another country for sale (p. 446)
fixed exchange-rate system a currency system in which
governments try to keep the values of their currencies constant
against one another (p. 461)
flexible exchange-rate system a currency system that allows the
exchange rate to be determined by supply and demand (p. 462)
foreign exchange market the banks and other financial institutions
that facilitate the buying and selling of foreign currencies (p. 460)
free-trade zone a region where a group of countries has agreed to
reduce or eliminate trade barriers (p. 454)
import a good brought in from another country for sale (p. 446)
import quota a limit on the amount of a good that can be imported
(p. 449)
infant industry a new industry (p. 452)
international free trade agreement agreement that results from
cooperation between at least two countries to reduce trade barriers
and tarriffs and to trade with each other (p. 453)
law of comparative advantage the idea that a nation is better off
when it produces goods and services for which it has a comparative
advantage (p. 444)
NAFTA agreement that will eliminate all tariffs and other trade
barriers between Canada, Mexico, and the United States (p. 454)
protectionism the use of trade barriers to protect a nation’s industries
from foreign competition (p. 452)
trade barrier a means of preventing a foreign product or service
from freely entering a nation’s territory (p. 449)
trade deficit the result of a country importing more than it exports
(p. 462)
trade surplus the result of a nation exporting more than it imports (p.
462)
trade war a cycle of increasing trade restrictions (p. 451)
voluntary export restraint (VER) a self-imposed limitation on the
number of products shipped to a particular country (p. 449)
World Trade Organization (WTO) a worldwide organization
whose goal is freer global trade and lower tariffs (p. 453)
CHAPTER 17 OUTLINE: INTERNATIONAL TRADE
From (http://www.phschool.com/webcodes10/index.cfm?fuseaction=home.gotoWebCode&wcprefix=mnf&wcsuffix=7171)
In today's global economy, many products that Americans use every day are produced in other countries. We drive Japanese cars,
wear clothes from China, and sit on furniture from Canada. These products come by trucks or trains or arrive at United States ports
aboard huge freighters. . . .
Section 1: Why Nations Trade
International trade is based on resources that one country needs and another can provide. Each country in the world possesses
different resources. By specializing in the production of certain goods and services, nations can use their resources more efficiently.
Specialization and trade can benefit all nations.
Section 2: Trade Barriers and Agreements
The free exchange of goods can be restricted by barriers to trade, such as tariffs, quotas, and voluntary export restraints. International
trade agreements, such as NAFTA, and organizations, such as the World Trade Organization, work to reduce trade barriers.
Section 3: Measuring Trade
International trade is complicated by a number of factors, including currency exchange and balance of trade. Countries pay for imports
in their own currencies and receive foreign currency for exports. If a nation imports more than it exports, or vice versa, a trade
imbalance is created.
SAMPLE ESSAY QUESTION
•
Discuss why countries trade, and how specialization promotes interdependence among nations.
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