Unit IV: International Economics
Chapters 17
Unit II: Supply, Demand, Equilibrium and Market Structures
17: International Trade
Grade
Vocabulary
FIB Notes
Daily 10
Current Events
Chapter Activity
Written Response
Study Guide
Participation
Total
/
/
/
/
/
/
/
/
/
Test Name
Grade
/100
/100
/100
Final Unit II Test
/100
International Economics
SSEIN1 The student will 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 The student will 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 The student will 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.
Unit IV: International Economics
Chapter
Standards
Chapter 17
EF1c, EIN1a,b,c, EIN3a,b,c,d
Standards Update Sheet
Name:________________________________Class:_______________Instructor:___________________
+
mastery
Standard
EIN1a
EIN1b
EIN1c
EIN2a
EIN2b
EIN2c
EIN2d
EIN2e
EIN3a
EIN3b
EIN3c
EIN3d
- needs improvement
Activity
Activity
Activity
Activity
Activity
Activity
Activity
Activity
Activity
Name: ____________________________________________________________________________________________
CHAPTER 17.1: – Interdependence and the Gains from Trade
Definition
Describe
Definition
Describe
Definition
Describe
I think
Draw
I think
Draw
I think
Draw
Definition
Describe
Definition
Describe
I think
Draw
I think
Draw
W.R.:http://www.youtube.com/watch?v=Vvfzaq72wd0
Activator
Two men live alone on an isolated island. To survive they must undertake a few basic economic activities like
water carrying, fishing, cooking and shelter construction and maintenance. The first man is young, strong, and
educated. He is also, faster, better, more productive at everything. The second man is old, weak, and
uneducated. He produces less than the younger man. In some activities the difference between the two is great;
in others it is small. For instance, the younger man can gather 50 coconuts every hour, or catch 150 fish. While
the older man can only gather 5 coconuts or catch 25 fish every hour.
1.
2.
3.
4.





Who is better at all activities in the scenario above? ______________________
What is the opportunity cost for the younger man if he dedicates his hour to gathering coconuts? ____________
What is the opportunity cost for the older man if he dedicates his hour gathering coconuts________________
Should they work separately or together on the island? Explain. _______________________________________
___________________________________________________________________________________________
Absolute Advantage – person or nation can produce _________________________________________________
___________________________________________________________________________________________
Comparative Advantage – the ability to produce ____________________________________________________
___________________________________________________________________________________________
Law of comparative advantage – a nation or person is better off when it produces goods ans services for which it
has a ____________________________________________
Globalization - the process by which regional economies, societies, and cultures have become
________________________________ through ________________________________, transportation, and
________________________________.
Coconuts or Fish?
Comparative Advantage
Absolute Advantage
Coconuts
Coconuts
Fish
Young
Young
Old
Old








Fish
Young Man has ______________________________ advantage because he can __________________________
___________________________________________________________________________________________
OGO – “Other goes over” method shows the _______________________________________________________
Young Man has ______________________________ advantage because he _____________________________
____________________________________________________________________________than the old man.
His opportunity cost for collecting coconuts is ____________________________ relative to the old man.
The old man has the ________________________ advantage in catching fish because he gives ______________
___________________________________________________________________________________________
His opportunity cost for catching fish is ________________________________ relative to the young man.
Important Note: the only time two people/nations/firms will not trade is if there is no
_________________________________________________, opportunity cost is the ______________________.
Steps for Determining Comparative Advantage
o Scenario: Canada and Mexico are considering the trade of two goods. Canada can produce 100 Furs or
100 trees. Mexico can produce 50 furs or 200 trees.
Step 1 – Input the Data
Productive Output
Fur
Trees
Canada
Mexico
Step 2 – Find the Opportunity Cost of Production
Opportunity Cost
Fur
Trees
Canada
_____ ÷_____ = _____
_____ ÷_____ = _____
Mexico
_____ ÷_____ = _____
_____ ÷_____ = _____
Step 3 – Analyze the data to determine comparative advantage
•
•
•
•
•
It costs Canada ______ fur for every tree it produces.
It costs Mexico ______ fur for every tree it produces.
It costs Canada ______ tree for every fur it produces.
It costs Mexico ______ tree for every fur it produces.
Therefore, ____________________________ should specialize in the production of Fur, while
_____________________________ should specialize in the production of trees

Kate and Carl
Productivity Per Hour
T-Shirts per hour
Birdhouses per hour
Kate
6 _____ ÷_____ = _____
2_____ ÷_____ = _____
Carl
1 _____ ÷_____ = _____
1 _____ ÷_____ = _____








Who has absolute advantage in this situation?
It costs Kate ________ birdhouses to produce 1 t-shirt.
It costs Kate ________ shirts to produce 1 birdhouse.
It costs Carl ________ to produce 1 t-shirt.
It costs Carl ________to produce 1 birdhouse.
________ has a comparative advantage when producing t-shirts.
________ has a comparative advantage when producing birdhouses.
Therefore, ___________ should produce t-shirts and __________ should produce birdhouses.
17.2: Trade Barriers and Agreements
Definition
Describe
Definition
Describe
Definition
Describe
I think
Draw
I think
Draw
I think
Draw
Definition
Describe
Definition
Describe
Definition
Describe
I think
Draw
I think
Draw
I think
Draw
Definition
Describe
Definition
Describe
Definition
Describe
I think
Draw
I think
Draw
I think
Draw
Definition
Describe
Definition
Describe
Definition
Describe
I think
Draw
I think
Draw
I think
Draw
Definition
Describe
Definition
Describe
I think
Draw
I think
Draw
W.R: Cuba trade embargo http://www.youtube.com/watch?v=tzo4qs4LvC0
Closed and Open Economies
 Closed economy - does ________________________________ with other economies in the world
 Open economy - interacts ________________________ with other economies around the world
 Exports – __________________________ produced goods and services that are __________________________
 Imports - goods and services produced ___________________________________________________________
Trade Barriers and Agreements
 Trade Barrier – a trade ________________________________, used to prevent a foreign product
from_______________________________________________________________________________
 Tariffs – a tax on ________________________________
 Customs Duty – a tax on items _______________________________________________
 Import Quotas – a limit on the amount of a good that ________________________________________________
 Voluntary Export Restraint – a ___________________________________________ on the number of products
shipped to a particular country (exports)
Balance of Trade
 Trade surplus - excess of ___________________________________________
o Exports____ Imports
 Trade deficit - excess of ___________________________________________
o Exports_____ Imports
 Balanced trade - exports ___________________________________________
o Exports ______ Imports
W.R.: Protectionism http://www.youtube.com/watch?v=Y2X3KPilAt0
Arguments for Protectionism
 Protectionism – the use of _________________________________________ to protect industries from
__________________________________
 Infant industry – a_________________________ founded industry in the ________________________________
International Cooperation and Agreements
 International Free Trade Agreement – results from ________________________________ between countries to
reduce trade ________________________________and ________________________________ to promote
________________________________
1. North American Free Trade Agreement (NAFTA) – agreement between________________________________,
________________________________ and the __________________ to eliminate tariffs and other trade
barriers
2. European Union (EU) – a regional trade organization of ________________________________
3. World Trade Organization (WTO) – a worldwide organization whose goal is to promote ____________________
________________________________, supervises ___________________________________________
 Award ________________________________________________________________
17.3: Measuring Trade
Definition
Describe
Definition
Describe
Definition
Describe
I think
Draw
I think
Draw
I think
Draw
Definition
Describe
Definition
Describe
Definition
Describe
I think
Draw
I think
Draw
I think
Draw
Definition
Describe
Definition
Describe
Definition
Describe
I think
Draw
I think
Draw
I think
Draw
Measuring Trade
 Exchange Rate – the value of one ________________________________________________________in relation
to another nation’s ______________________________
 Fixed exchange rate system – a currency system in which governments try to keep the value of their
currencies ________________________________________________________
 Flexible exchange rate system – a currency system that allows the exchange rate to be determined by
________________________________________________________ (most major currencies have this)
 Determining the Rate of Exchange
 1 Dollar = 12 Mexican Pesos
 ________/________ = _________
 ________x ________ = ________
 Hotel room costs ________ Pesos per night
 ________/________ = ________
Currency Conversion Practice
Conversion for the value of the American Dollar in that foreign country.
2001
2002
2003
U.S.
1.00
1.00
1.00
Canada
1.55
1.60
1.35
Mexico
9 pesos
10 pesos
11 pesos
Great Britain
0.70 pound
0.65 pound
0.60 pound
Answer the following questions:
1. How much is the American dollar worth in Canada?
2001______________________ 2002 _______________________ 2003 ________________
Is the American Dollar stronger or weaker? _______________________________________
2. How much is the American Dollar worth in Mexico?
2001______________________ 2002 _______________________ 2003 ________________
Is the American Dollar stronger or weaker? _______________________________________
3. How much is the American Dollar worth in Great Britain?
2001______________________ 2002 _______________________ 2003 ________________
Is the American Dollar stronger or weaker? _______________________________________
Convert the above currency information to the value of the foreign currency in America
Formula :
2001
2002
2003
USD/current rate =
U.S.
Canada
Mexico
Great Britain
1.00
1.00/1.55 = .63
1.00/9 = .11
1.00/.70 = 1.43
1.00
1.00
Convert the currency between countries according to the question. Hint: when wanting to know the value of currency
from one country to another divide. Examples are provided for the year 2001.
4. Canadian Dollar value in Mexico
1 Canadian dollar is worth how much in Mexico?
2001____.63/.11= 5.72___
Written explanation: The Canadian dollar is worth 5.72 to every 1 Mexican peso
2002 __________/_________=____
Written explanation:
2003 _______/_____=____
Written explanation:
5. Mexican Peso value in Canada
1 Mexican Peso is worth how much in Canada?
2001____.11/.63=.17
Written explanation: The Mexican Peso is worth only .17 to every 1 Canadian Dollar
2002 __________/_________=____
Written explanation:
2003 _______/_____=____
Written explanation:
6. Mexican Peso value in Great Britain
1 Mexican Peso is worth how much in Great Britain?
2001____.11/1.43=.077
Written explanation: The Mexican Peso is worth .077 to every 1 British Pound
2002 _________/_________=_____
Written explanation:
2003 ______/_____=_____
Written explanation:
7. British Pound value in Mexico
1 British Pound is worth how much in Mexico?
2001___1.43/.11=14.3
Written explanation: The British Pound is worth 14.3 to every 1 Mexican Peso
2002 __________/________=_____
Written explanation:
2003 _______/____=_____
Written explanation:
Answer the following questions:
Hint: Multiply
Mexico:
20 Mexican pesos would convert to how much money in the U.S.?
2000:__.11(20)= 2.20 American Dollars
2002 _______________________ 2003 ________________
Can you buy more or less in the United States?
2001______________________ 2002 _______________________ 2003 ________________
Canada:
50 Canadian Dollars would convert to how much money in the U.S.?
2001:__.63(50)= 77.50 American Dollars 2002 _______________________ 2003 ________________
Can you buy more or less in the United States?
2001______________________ 2002 _______________________ 2003 ________________
Great Britain:
15 British Pounds would convert to how much money in the US?
2001:__1.42(15)= 21.30 American Dollars
2002 _______________________ 2003 ________________
Can you buy more or less in the United States?
2001______________________ 2002 _______________________ 2003 ________________
Values:
1.3 = $1.30 One Dollar and Thirty cents
.30 = $.30 30 cents
.03 = $.03 3 cents
Exchange rate work sheet:
People, firms and nations exchange products for money and use the money to buy other products or to pay for
the use of resources. Within an economy, prices are stated in the domestic currency, such as US dollars or
European euros. Buyers use their currency to purchase goods. International markets are different. Producers in
other countries who export goods want to be paid in their own currencies so they can carry out transactions. As
a result, a foreign exchange market develops where national currencies can be exchanged. Such markets serve
the need of all international buyers and sellers. The equilibrium prices in these markets are called exchange
rates. An exchange rate is the rate at which the currency of one nation is exchanged for the currency of another.
The following shows the exchange rates for selected countries for 2 separate months of the same year.
British pound
Canadian
Dollar
European euro
Japanese Yen
Mexican Peso
Swedish Krona
Cost of foreign currency in US
dollars (US dollars / foreign
currency)
May
Aug
1.4
1.8
.64
.63
Cost of US dollar in foreign
currency (Foreign currency/ US
Dollars
May
Aug
.71
.56
1.56
1.58
.87
.0083
.11
.094
1.14
120.48
9.08
10.63
.91
.0090
.15
.093
1.09
111.111
6.65
10.75
Using the data from above, calculate the cost of the following products in US dollars. To solve, divide the cost
of the product in the foreign currency by the cost of the US dollar in the foreign currency.
May
Aug
A dinner for 2 that cost 500 pesos
A hotel room that cost 30,000 yen
A BMW that cost 85,000 euros
A Pound of Swedish meatballs that cost
30 Krona
A pair of pants that cost 72 pounds in
London
A leather jacket that cost 1,800 Canadian
Dollars
Determine whether or not the dollar is appreciating or depreciating in value for each foreign currency.
Graph the resulting change in the market for currency for each situation. You must write a rationale.
1. Prices of US goods rise relative to the prices of German goods:
Euro price
of dollars
US price of
euros
Quantity of US
dollars
Quantity of Euro
Rationale:
2. Interest Rates in the US rise faster than interest rates in Canada:
Canadian /
US dollar
exchange
rate (price
of US
dollars in
Canadian in
dollars)
Canadian/ US
dollar
exchange rate
(price of
Canadian in US
dollars)
Quantity of US
dollars
Quantity of
Canadian Dollars
Rational:
3. French Tourist flock to Mexico’s beaches
Euro/ Peso
exchange
rate (Euro
price of
Pesos)
Peso /Euro
exchange
rate (Peso
price of
euros)
Quantity of Peso
Rational:
Quantity of Euro
4. Japanese video games become popular with US children:
Yen/ US
dollar
exchange
rate (yen
price of
dollars)
Yen/ US
dollar
exchange
rate
(dollar
price of
Yen)
Quantity of US
dollars
Quantity of Yen
Rational:
Worksheet Currency Exchange
Use the exchange rates from the following table. Note that exchange rates change every day. These rates are just
examples.
C$1
In C$
(value of C$ in respective country below)
(value of respective country’s currency in
Canada)
.991051
.616697
.727323
82.413
83.6623
1.00903
1.62154
1.37490
.012134
.011953
US dollar $
British Pound £
Euro €
Japanese Yen ¥
Jamaican Dollar J$
1. Convert C$435 to the following currencies.
a) U.S. dollars
b) Euros
I.E.: C$435(1.00903)= $438.92
c) British pounds
d) Japanese yen
2. Convert each of the following amounts to Canadian dollars.
a) US$255
b) J$95
I.E.: 255/1.00903= $252.72
c) ¥25 000
d) £4300
3. Which amount has the greatest value in Canadian dollars?
US$15
€11
£10
15(1.00903)=15.14
4. Which amount has the least value in Canadian dollars?
J$54 631
¥54 133
54,631(.011953)=653
US$649
5. While on a holiday in Montego Bay, Jamaica, Marilyn shops for souvenirs for friends. She has budgeted C$120
for souvenirs.
a) How much does she have in Jamaican dollars to spend on souvenirs?
b) In one shop, she finds a T-shirt for J$668. At a shop a few streets away, she finds the
same T-shirt for J$680. How much does each T-shirt cost in Canadian dollars?
c) Should she go back to the first shop to buy the T-shirt? Explain.
Check Your Understanding
6. Su Mei is looking at online classified ads. She finds a used cell phone for US$99 plus US$30 for shipping. The
same cell phone costs C$199 new at a local store.
a) What is the total cost of the used cell phone in Canadian dollars?
b) Do you think Su Mei should buy the cell phone online? Why?
7. While in Manchester, England, Chelsea bought a sweater for £28. When she returned, she saw the same sweater
for C$38. Which sweater cost more? By how much in Canadian dollars?
8. Sonya found a dress online for US$139. She found a similar dress in a store where she lives for C$230. Give Sonya
advice on which dress to buy. Include pros and cons of shopping online versus shopping in her local store.
Daily Assignment Questions, pgs. 441 - 447
1. Describe how there is an unequal resource distribution in the world ____________________________________
___________________________________________________________________________________________
2. Describe why there is a need for trade ___________________________________________________________
__________________________________________________________________________________________
3. Describe the difference between absolute and comparative advantage__________________________________
___________________________________________________________________________________________
4. What is the position of the United States relative to other countries regarding International trade?
___________________________________________________________________________________________
___________________________________________________________________________________________
5. Where does the United States stand as an exporter? ________________________________________________
6. What countries are numbers 2 and 3 respectively? __________________________________________________
7. What are the two reasons that the U.S. is successful as an exporter? ____________________________________
___________________________________________________________________________________________
8. What services does the U.S. export? ______________________________________________________________
___________________________________________________________________________________________
9. Where does the United States stand as an importer? ________________________________________________
10. How much does the U.S. import every year? _______________________________________________________
DAQ’s pgs. 449 -456
11. Explain how import quotas affect the United States import of cotton ___________________________________
___________________________________________________________________________________________
12. What are some other barriers to trade? __________________________________________________________
___________________________________________________________________________________________
13. How do increased prices for foreign goods affect the consumer? _______________________________________
___________________________________________________________________________________________
14. What is a trade war? __________________________________________________________________________
15. How do trade wars affect both countries? _________________________________________________________
NAFTA: Is Free Trade a Good Idea? Pg 465
1. What was the debate in the 1980’s and early 1990’s over regarding NAFTA? _____________________________
___________________________________________________________________________________________
2. What were the Pro-NAFTA arguments? ___________________________________________________________
___________________________________________________________________________________________
3. What were the Anti-NAFTA arguments? ___________________________________________________________
___________________________________________________________________________________________
4. When did NAFTA go into effect? _________________________________________________________________
5. List the consequences of NAFTA? ________________________________________________________________
6. Based on the table on page 465, which of the provisions have benefited the United States? _________________
___________________________________________________________________________________________
Name ____________________________________________________________ Date_____________ Period _________
Chapter 17 Study Guide – International Trade
Section 1 – Why Nations Trade
1. A person or nation has an ________________________________ advantage when it can produce more of a
given product using a given amount of resources.
2. A person or nation has an ________________________________ advantage when it can produce a given
product more efficiently given all the other products that could be produced
3. Comparative advantage measures the _____________________________________________ cost of producing
one product over another.
4. According to the law of comparative advantage ____________________________________________________
___________________________________________________________________________________________
Section 2 – Trade Barriers and Agreements
5. A ____________________________________________________is a means of preventing a foreign product
from freely entering a nation’s territory.
6. Describe the three types of trade barriers:
a. Import Quota____________________________________________________________________________
_______________________________________________________________________________________
b. Voluntary Export Restraint__________________________________________________________________
_______________________________________________________________________________________
c. Tariff ___________________________________________________________________________________
_______________________________________________________________________________________
7. What are the effects of trade barriers on supply? ___________________________________________________
___________________________________________________________________________________________
8. What are the effects of trade barriers on prices for foreign goods? _____________________________________
___________________________________________________________________________________________
9. How do trade wars affect trade between two countries? _____________________________________________
___________________________________________________________________________________________
10. Protectionism is ______________________________________________________________________________
11. Describe the three arguments for protectionism:
a. Protecting jobs___________________________________________________________________________
_______________________________________________________________________________________
b. Protecting Infant Industries_________________________________________________________________
_______________________________________________________________________________________
c. Safeguarding National Security______________________________________________________________
_______________________________________________________________________________________
12. An agreement that results from cooperation between at least two countries to reduce trade barriers and tariffs
and to trade with each other is an _______________________________________________________________
13. Describe each of the following:
a. World Trade Organization__________________________________________________________________
_______________________________________________________________________________________
b. European Union__________________________________________________________________________
_______________________________________________________________________________________
c. NAFTA__________________________________________________________________________________
_______________________________________________________________________________________
Section 3 – Measuring Trade
14. The exchange rate is __________________________________________________________________________
___________________________________________________________________________________________
15. Describe the difference between appreciation and depreciation of currency ______________________________
___________________________________________________________________________________________
16. Describe the difference between a trade deficit and trade surplus ______________________________________
___________________________________________________________________________________________
17. The relationship between a nation’s imports and its exports is its ______________________________________
18. Suppose your family is planning a trip to Mexico this summer and wants to determine the cost of staying in a
hotel. If a hotel room in Mexico costs 1000 pesos per night and the exchange rate is 10.0 pesos per dollar, how
much will a hotel room cost? ___________________________________________________________________
*Hint, divide the number of pesos by the exchange rate ratio of pesos per dollar*
19. Suppose your family is planning a trip to France this summer and wants to determine the cost of staying in a
hotel. If a hotel room in France costs 1000 Euro per night and the exchange rate is 0.69 Euros per dollar, how
much will a hotel room cost? ___________________________________________________________________
Absolute and Comparative Advantage Practice:
16. Mexico and Colombia are considering trade of two products, Corn and Oil. Colombia can produce 30 bushels of
corn or 15 barrels of oil. In Mexico, they can produce 20 bushels of corn and 10 barrels of oil.
 Fill in the tables based on the scenario:
Productive Output
Corn
Oil
Mexico
Colombia

Which country enjoys an absolute advantage in both oil and corn? _____________________________________
Opportunity Costs for Mexico and Colombia
Opportunity Cost of Producing Corn
Opportunity Cost of Producing Oil
Mexico
_______ ÷ ________ = __________
_______ ÷ ________ = __________
_______ ÷ ________ = __________
_______ ÷ ________ = __________
Colombia
17. Based on the scenario, why should Mexico and Colombia not trade goods? ______________________________
__________________________________________________________________________________________
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
Word Bank: Absolute, Comparative, Opportunity, Law of Comparative Advantage, Trade Barrier,
Import Quota, Voluntary Export Restraint, Tariff, Customs Duty, Trade War, Protectionism,
International Free Trade, World Trade Organization, European Union, NAFTA, Exchange Rate,
Appreciation, Depreciation, Trade Deficit, Trade Surplus, Balance of Trade.
ACROSS
3 An increase in the value of currency
6 A person or nation has this type of advantage
when it can produce given product more
efficiently given all the other products that
could be produced
11 A self-imposed limitation on the number of
products shipped to a particular country
16 An agreement that will eliminate all tariffs and
trade barriers between Canada, Mexico, and
the United States
18 A person or nation has this type of advantage
when it can produce more of a given product
using a given amount of resources
19 Is a means of preventing a foreign product
from freely entering a nation’s territory
20 When a nation imports more than it exports
21 A decrease in the value of currency
DOWN
1 This law states that two countries should
trade products when it produces products for
which it has a comparative advantage
2 A worldwide organization whose goal is to
increase free global trade and lower tariffs
4 Comparative advantage measures this type of
cost, which is the next best use of time,
money, resources, etc.
5 Agreement that results from cooperation
between at least two countries to reduce
trade barriers and tariffs to trade with each
other
7 A regional trade organization made up of
European nations
8 A cycle of increasing trade restrictions
between two countries
9 The use of trade barriers to protect a nation’s
industries from foreign competition
10 The relationship between a nation’s imports
and its exports
12 When a nation exports more than it imports
13 The value of a foreign nation’s currency in
terms of the home nation’s currency
14 A limit on the amount of a good that can be
imported
15 A tax on certain items purchased abroad
17 A tax on imported goods