International Trade

International Trade

• Individuals, businesses, and countries work together

• Interdependence: nations depend on other nations for goods and services not available in their country

• Specialization: producing a limited amount or type of product

• Exports: goods sent to other countries

• Imports: goods received from other countries

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​Global Economy

• To ensure countries are getting needed imports and profiting on exports

• To ensure a variety of needed products are available on the market

• Essential to ensure imports are available to meet all of our needs and wants

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​International Trade

Multiple Choice

Why do countries trade with each other?

• To have friendly relationships with other countries

• So companies can make more money

• To get goods and services for a lower price or that cannot be made in your own country

• To sell your goods and services to the people of your own nation at a higher price

• Tariffs: tax on imports

• Quotas: limits on the amount of the product that can be imported

  • Used to protect domestic production of products

• Embargo: cuts off trade with another country, usually for political reasons

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​Trade Barriers

• Putting barriers on imports can cause other countries to respond and put barriers on our exports to their country

• Trade barriers make prices of goods more expensive and can cause trade wars

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​Trade Barriers

Multiple Choice

Why are trade wars seen as a bad thing?

• They decrease the price of goods for consumers and create tension between countries

• Trade wars are not a bad thing

• They force countries to actually go to war with each other

• They increase the price of goods for consumers and create tension between countries

• Countries choose to specialize in trading products that they can produce cheaper than other countries

  • Ex. If a country can produce bananas at a lower cost than oranges, they can choose to only grow bananas and trade for oranges

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​Specialization

• The ability of a country to produce more of a product than another country can with fewer resources

• One way countries can determine what they specialize in

• Larger numbers for each product

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​Absolute Advantage

• The ability of a country to produce a product at a lower opportunity cost than other countries

  • Opportunity cost: what you have to give up to gain something else

• The other way countries decide what to specialize in

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​Comparative Advantage

• To find comparative advantage, you find the opportunity cost of each good (for good A take output A/output B)

• Vietnam's opportunity cost:

  • Wheat: 80/25= 3.2, 1 wheat = 3.2 rice

  • Rice: 25/80= 0.31, 1 rice = 0.31 wheat

  • Opportunity cost of rice is higher, so that's what they should produce

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​Comparative Advantage