Resources for Global Trade Economics| Chapter 17

Transcript:Resources for Global Trade Economics| Chapter 17:
Resources for Global Trade Economics| Chapter 17 Essential Question How does trade benefit all participating parties? Absolute and Comparative Advantage Why Nations Trade Nations trade for the same reasons that individuals do—because they believe that the products they receive are worth more than the products they give up. How does trade allow for specialization? Specialization When people specialize, they produce the things they do best and exchange those products for the things other people do best. To see what a country specializes in you look at its exports To see what it does not produce efficiently look at its imports Extent of Trade The United States imports about $7,550 per person in goods and services Absolute and Comparative Advantage The Basis for Trade How does trade result in greater overall output? Absolute Advantage when a country can produce more of a product than another country Comparative Advantage the ability to produce a product relatively more efficiently, or at a lower opportunity cost. Absolute and Comparative Advantage The Gains from Trade Greater World Output The concept of comparative advantage is based on the assumption that everyone will be better off by specializing in the products they produce best. Because each country has a comparative advantage in a product the other country wants, trade will be beneficial to both and will lead to economic growth. Increased Political Stability Economists argue that cooperation in international economic affairs precedes political cooperation. Faster Economic Growth The gains from trade also help an economy to grow. The growth comes from two sources: a bigger market for the country’s manufactured goods and services, and the ability to secure needed inputs for production. Barriers to International Trade Restricting International Trade Why does the government place restrictions on international trade? Tariffs a tax placed on imports to increase their price in the domestic market. A protective tariff is a tariff high enough to protect less-efficient domestic industries. The revenue tariff is a tariff high enough to generate revenue for the government without actually prohibiting imports. Quotas a limit placed on the quantities of a product that can be imported. Foreign goods sometimes cost so little that even a high tariff on them might not protect the domestic market, so governments will use quotas Barriers to International Trade Restricting International Trade Other Barriers Embargos—Sometimes a country will place an embargo, or a government order prohibiting the movement of goods to