International Trade 1

International Trade 1

by Dellon-Dale BENNETT

​Objectives

​to explain the meaning of terms associated with international trade

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​explain the rationale for trade

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​explain gains of trade and specialization

​Definition

​International trade is the exchange of capital, goods, and services across international borders or territories.

​Why Do Countries Trade?

Countries trade with each other when, on their own, they do not have the resources, or capacity to satisfy their own needs and wants. By developing and exploiting their domestic scarce resources, countries can produce a surplus, and trade this for the resources they need.

​Why Do Countries Trade?

• ​To obtain goods from other countries that are unavailable or too costly to produce in the local market.

• ​The distribution of economic resources: natural, human, capital, among counties.

• ​promotes the efficient production of various goods and services.

Open Ended

Discuss THREE some reasons for trade by countries in the Caribbean (6 marks)

Multiple Choice

Definition of Trade Surplus

• occurs when a value of a nation’s export is less than the value of its imports

• occurs when a value of nation’s export is greater than the value of its imports

• goods and services produced in one country and sold to other countries.

• goods and services consumed in a country but which have been purchased from other countries.

Multiple Choice

Definition of Exports

• occurs when a value of a nation’s export is less than the value of its imports

• goods and services consumed in a country but which have been purchased from other countries.

• occurs when a value of nation’s export is greater than the value of its imports

• goods and services produced in one country and sold to other countries.

Multiple Choice

What is not a Disadvantage of International Trade?

• Political Dependence

• Import of Harmful Goods

• Optimal use of natural resources

• Mis-utilisation of Natural Resources

Multiple Choice

What is NOT an advantage of International Trade

• Speedy Industrialization

• Availability of all types of goods

• Fall of Prices

• Exhaustion of Resources

​Specialization in Trade

​For trade to take place there must be specialization. Specialization involves the use of resources by a nation to produce the goods and services for which those resources are best suited.

​This allows countries to produce the good or service they are best at because can produce them more cost-efficiently than any other good or service.

Open Ended

Identify TWO goods or services that a named Caribbean country specializes in. (2 marks)

​Gains of Trade

​Gains from specialization are usually exmined uin terms of two theories, absolute advantage and comparative advantage.

​

Gains of Trade refers to the ability of two agents to increase their consumption possibilities by specializing in the good in which they have absolute or comparative advantage and trading for a good in which they do not have absolute or comparative advantage.

​Absolute Advantage

​the ability to produce more of a good than another countries, given the same resources.

​Absolute Advantage

​For example, in a single day, Owen can embroider 10 pillows and Penny can embroider 15 pillows, so Penny has absolute advantage in embroidering pillows.

​Comparative Advantage

​the ability to produce a good at a lower opportunity cost than another entity.

​Comparative Advantage

For example, for every pillow Owen embroiders his opportunity cost is 2 scarves knitted, while Penny must forego 3 scarves for every pillow she embroiders, so Owen has comparative advantage in embroidering pillows.

Multiple Choice

To focus on producing one thing to improve productivity is known as:

• Specialization

• International trade

• Absolute Advantage

• Supply and Demand

Multiple Choice

When determining comparative advantage one must determine 

• Specialization

• Opportunity cost

• Absolute Advantage

• Embargos 

Multiple Choice

. If I am better at all types of production, I have the ______ in all forms of production.

• Comparative advantage

• Specialization

• developed nation

• Absolute advantage