Trade Basics

Trade Basics

No one country can produce everything its people need. Comparative advantage is a country’s ability to produce something more efficiently or competitively than other goods. Each country tends to focus on making the goods or services for which it has a comparative advantage. It then trades those goods for others it cannot produce as efficiently.

 

Trade benefits both the buyer and the seller. Each country can specialize in making one or a few things and still have a variety of goods.

 

Domestic trade is between producers and consumers in the same country. In international trade, goods are traded between countries. People in one country sell them to those in another. Goods shipped out of a country are called exports. Those shipped into a country are called imports.

 

Each country has its own money system, or currency. The money of one country is exchanged for that of another in a currency exchange. This makes trade possible.

Match

Match the following

• Domestic trade

• International trade

• Exports

• Imports

• Comparative advantage

Trade within a country

Trade between countries

Goods sent out of a country to sell

Goods brought in from another country

Making a good more efficiently

• Trade within a country

• Trade between countries

• Goods sent out of a country to sell

• Goods brought in from another country

• Making a good more efficiently

Trade Barriers and Free Trade

Sometimes a government wants to limit the imports coming into a country. It may want consumers to buy goods made within the country. Governments may put in place trade barriers to limit international trade. Free trade is trade free of trade barriers.

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Sometimes a government wants to limit the ​

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coming into a country. It may want ​

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to buy goods made within the country. ​

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may put in place trade barriers to limit international trade. ​

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is trade free of trade barriers.

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Free trade

imports

consumers

Governments

Economic Development

Development is the growth of a country’s economy or an increase in the standard of living of its people. A developed country has a strong economy and a high standard of living. Most countries in the world are developing countries. They have less productive economies. Their people have a lower standard of living.

 

Economists can measure a country’s economy. They use a tool called gross domestic product, or GDP. A country’s GDP is the total value of all goods and services produced there in one year.

 

A country’s people can increase their level of development. One way is to find more resources so they can produce goods and services. Another is to invest in capital goods—tools and other equipment to make goods more efficiently. A third way is to invest in workers’ skills and knowledge, or human capital. That makes workers more productive.

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​ is the growth of a country’s economy or an increase in the standard of living of its people. A ​

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has a strong economy and a high standard of living. Most countries in the world are developing countries. They have ​

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. Their people have a ​

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standard of living.



Economists can measure a country’s economy. They use a tool called ​

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, or GDP. A country’s GDP is the total value of all goods and services produced there in ​

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.

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developed country

less productive economies

lower

gross domestic product

one year

higher

one day

more productive economies

greater demand performance