Splash Screen

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Splash Screen
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Chapter Menu
Chapter Introduction Section 1 Absolute and
Comparative Advantage Section 2 Barriers to
International Trade Section 3 Foreign Exchange
and Trade Deficits Visual Summary
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Chapter Intro 1
You and a classmate are planning to open a
lawn-service business. You will each contribute
200 toward the purchase of a mower, gas can,
trimmer, and other materials for the business.
Now it is time to get organized. Work with a
classmate and make a list of the different jobs
associated with your lawn-service business. What
criteria will you use to divide up these jobs?
Why? Read Chapter 16 to find out how nations make
decisions about what to produce and trade with
other nations.
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Chapter Intro 2
Trade and specialization lead to economic growth
for individuals, regions, and nations.
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Chapter Intro-End
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Section 1-Preview
Section Preview
In this section, you will learn that comparative
advantage is the basis for international trade.
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Section 1-Key Terms
Content Vocabulary

• exports
• imports

• absolute advantage
• production possibilities frontier

• comparative advantage
• opportunity cost

Academic Vocabulary

• volume

• enabled

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Section 1
What products do you think the state of Texas
primarily trades? A. Citrus fruits B. Oil and
cattle C. Cattle and wine D. Computers

1. A
2. B
3. C
4. D

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Section 1
Why Nations Trade
Trade allows nations to specialize in some
products and then trade them for goods and
services that are more expensive to produce.
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Section 1
Why Nations Trade (cont.)

• Reasons to trade

• Some countries lack essential raw materials.
• Specialization

• Exports
• Imports

American Dependence on Trade
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Section 1
Why Nations Trade (cont.)

• Sheer volume of trade between nations is proof
  that trade is beneficial.

U.S. Merchandise Trade by Area
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Section 1
The United States imports goods that amount to
approximately how much per capita? A. 8,500
B. 6,500 C. 5,500 D. 2,500

1. A
2. B
3. C
4. D

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Section 1
The Basis for Trade
Trade works best when countries focus on those
products they can produce best.
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Section 1
The Basis for Trade (cont.)

• Countries find it cheaper to import some products
  than to manufacturer them.

• Absolute advantagecountry can produce more of a
  product than another country.

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Section 1
The Basis for Trade (cont.)

• Production possibilities frontierdiagram
  illustrating the maximum combinations of goods
  and/or services one can produce utilizing fully
  employed resources.

The Gains from Trade
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Section 1
The Basis for Trade (cont.)

• Countries with an absolute advantage benefit from
  trade with another country whenever it has a
  comparative advantage because its opportunity
  cost is lower than another countrys.

• Total world output grows when there is
  specialization and trade among nations.

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Section 1
What happens to world output when there is
specialization and international trade? A. Growth
is slow but worthwhile. B. Growth is
significant in concentrated areas. C. No
additional growth in output takes place. D.
There is a drop in world output.

1. A
2. B
3. C
4. D

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Section 1-End
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Section 2-Preview
Section Preview
In this section, you will learn that nations use
tariffs and quotas to protect special interests,
while the free trade movement tries to eliminate
trade barriers.
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Section 2-Key Terms
Content Vocabulary

• tariff
• quota
• protective tariff
• revenue tariff

• protectionists
• free traders
• infant industries argument
• balance of payments

• most favored nation clause
• World Trade Organization (WTO)
• North American Free Trade Agreement (NAFTA)

Academic Vocabulary

• imposed

• justify

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Section 2
Would you purchase a cell phone imported from
Japan just because the price is a few dollars
less than the one manufactured here? A. Yes,
saving money is my goal. B. No, a few extra
dollars in my pocket doesnt compare to lost
American jobs. C. It depends.

1. A
2. B
3. C

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Section 2
Restricting International Trade
Tariffs and quotas are the main ways to restrict
international trade.
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Section 2
Restricting International Trade (cont.)

• Restrictions to trade

• Tariff

• Protective tariff
• Revenue tariff

• Quota
• Imported foods subjected to rigorous health
  inspections

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Section 2
Restricting International Trade (cont.)

• Restrictions to trade

• Requiring a license to import

• Culture and nationalism

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Section 2
Before the Civil War, tariffs were used largely
to generate revenue for the federal
government. A. True B. False

1. A
2. B

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Section 2
Arguments for Protection
Protectionists disagree with free traders over
the best way to protect a countrys independence,
industries, and workers.
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Section 2
Arguments for Protection (cont.)

• Protectionists and free traders are constantly in
  debate.

• National defense
• Infant industries argument
• Protecting American jobs
• Keeping the money at home
• Balance of payments
• National pride

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Section 2
The United States imports significantly more
products from China than it exports. The balance
of payments is therefore significant. With which
side of the debate do you align
yourself? A. Protectionists B. Free traders C.
Neither

1. A
2. B
3. C

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Section 2
The Free Trade Movement
Because tariffs hurt more than they helped during
the Great Depression, the United States has found
ways to reduce trade restrictions.
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Section 2
The Free Trade Movement (cont.)

• Smoot-Hawley Tariff Act passed in 1930

• One of most restrictive tariffs in U.S. history
• Import duties so high that other countries did
  same
• International trade nearly ceased

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Section 2
The Free Trade Movement (cont.)

• Reciprocal Trade Agreements Act passed in 1934

• Reduced tariffs up to 50 if other countries did
  the same.
• Most favored nation clause

• General Agreement on Tariffs and Trade (GATT) in
  1947

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Section 2
The Free Trade Movement (cont.)

• World Trade Organization (WTO) replaced GATT.

• Administers trade agreements signed under GATT
• Settles trade disputes between nations
• Organizes trade negotiations
• Provides tech assistance and training to
  developing countries

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Section 2
The Free Trade Movement (cont.)

• North American Free Trade Agreement (NAFTA)

• Has allowed NAFTA partners to capitalize on their
  comparative advantages

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Section 2
If you were in charge of trade for all businesses
or government agencies in your community, which
trade practices would you engage in? A. Quotas B.
Tariffs C. Most favored nation clause D. None
of the above

1. A
2. B
3. C
4. D

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Section 2-End
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Section 3-Preview
Section Preview
In this section, you will learn that a
long-lasting trade deficit affects the value of a
nations currency as well as the value and volume
of its exports and imports.
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Section 3-Key Terms
Content Vocabulary

• foreign exchange
• foreign exchange rate

• fixed exchange rates
• flexible exchange rates
• floating exchange rates

• trade deficit
• trade surplus
• trade-weighted value of the dollar

Academic Vocabulary

• secure

• persistent

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Section 3
Which do you think is better for the U.S.
economy? A. Strong dollar B. Weak
dollar C. Doesnt matter

1. A
2. B
3. C

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Section 3
Financing International Trade
International trade relies on the ability to
exchange foreign currencies.
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Section 3
Financing International Trade (cont.)

• Supply and demand causes the dollar and other
  international currency to fluctuate daily.

• Foreign exchangedifferent currencies are bought
  and sold for international trade
• Foreign exchange rateprice of one countrys
  currency in terms of another countrys

Foreign Exchange Rates
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Section 3
Financing International Trade (cont.)

• Two major kinds of exchange rates exist

• Fixed exchange rates
• Flexible exchange rates or floating exchange rates

Flexible Exchange Rates
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Section 3
Financing International Trade (cont.)

• Whenever the dollar fallsexports tend to go up
  and imports down. If dollar rises, the reverse is
  true.

The Global Economy YOUBig Mac Index
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Section 3
Would the price of a pair of Levi jeans in Russia
be the same as the price here in the United
States? A. No, price in Russia would
be overvalued against the dollar. B. No, price
in Russia would be undervalued against the
dollar. C. Yes, price would be the same.

1. A
2. B
3. C
4. D

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Section 3
Trade Deficits and Surpluses
The strength of the dollar affects trade and
therefore trade deficits and surpluses.
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Section 3
Trade Deficits and Surpluses (cont.)

• The international value or strength of the dollar
  affects trade

• Trade deficit
• Trade surplus

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Section 3
Trade Deficits and Surpluses (cont.)

• Federal Reserve System tracks the trade-weighted
  value of the dollar.

• If index fallsdollar is weak in relation to
  other currencies.
• If index risesdollar is strong.

International Value of the Dollar
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Section 3
Trade Deficits and Surpluses (cont.)

• A persistent trade imbalance can affect income
  and employment.

• No net gain in having a strong or a weak
  dollarone sector is helped, another hurt.

Profiles in EconomicsJerry Yang
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Section 3
What is the result of U.S. exports when the
dollar is strong? A. U.S. imports decline. B.
Exports become cheaper for other nations. C.
U.S. imports increase. D. U.S. trade surplus
results.

1. A
2. B
3. C
4. D

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Section 3-End
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VS 1
Absolute and Comparative Advantage A country has
absolute advantage when it can produce more of a
product than can another country. It has
comparative advantage when it can produce a
product at a lower opportunity cost than another
country. When countries focus on those products
for which they have comparative advantage, world
production increases.
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VS 2
Free Trade Movement After strict tariffs
severely limited world trade during the early
years of the Great Depression, the United States
and other countries worked to open trade.
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VS 3
Trade Deficits and Surpluses The strength of
the dollar affects the balance of trade of the
United States.
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VS-End
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Figure 1
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Figure 2
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Figure 3
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Figure 4a
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Figure 4b
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Figure 5
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Figure 6
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Figure 7
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Profile
Jerry Yang (1968 )

• cofounder of the Internet Web portal Yahoo!
• became a billionaire three years after starting
  the company
• ranked on Forbess list of the worlds richest
  people

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Concept Trans Menu
Economic Concepts Transparencies
Transparency 20 Absolute and Comparative
Advantage Transparency 21 Exchange Rates and
Balance of Payments
Select a transparency to view.
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Concepts Trans 1
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Concepts Trans 2
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DFS Trans 1
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DFS Trans 2
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DFS Trans 3
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Vocab1
exports the goods and services that a nation
sells to other nations
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Vocab2
imports the goods and services that a nation buys
from other nations
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Vocab3
absolute advantage countrys ability to produce
more of a given product than another country can
produce
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Vocab4
production possibilities frontier diagram showing
the maximum combinations of goods and/or services
an economy can produce when all resources are
fully employed
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Vocab5
comparative advantage countrys ability to
produce a given product relatively more
efficiently than another country by doing it at a
lower opportunity cost
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Vocab6
opportunity cost cost of the next-best
alternative use of money, time, or resources when
making a choice
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Vocab7
volume amount quantity
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Vocab8
enabled made possible
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Vocab9
tariff tax placed on an imported product
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Vocab10
quota limit on the amount of a good that is
allowed into a country
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Vocab11
protective tariff tax on an imported product
designed to protect less-efficient domestic
producers
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Vocab12
revenue tariff tax placed on imported goods to
raise revenue
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Vocab13
protectionist person who wants to protect
domestic producers against foreign competition
with tariffs, quotas, and other trade barriers
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Vocab14
free trader person who favors fewer or even no
trade restrictions
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Vocab15
infant industries argument argument that new and
emerging industries should be protected from
foreign competition until they are strong enough
to compete
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Vocab16
balance of payments difference between money paid
to, and received from, other nations in trade
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Vocab17
most favored nation clause trade law allowing
another country to enjoy the same tariff
reductions the United States negotiates with any
third country
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Vocab18
World Trade Organization (WTO) international
agency that administers trade agreements, settles
trade disputes between governments, organizes
trade negotiations, and provides technical
assistance and training for developing countries
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Vocab19
North American Free Trade Agreement
(NAFTA) agreement signed in 1993 to reduce
tariffs and increase trade among the United
States, Canada, and Mexico
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Vocab20
imposed established applied
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Vocab21
justify to defend as warranted or necessary
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Vocab22
foreign exchange various currencies used to
conduct international trade
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Vocab23
foreign exchange rate price of one countrys
currency in terms of another countrys currency
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Vocab24
fixed exchange rate system under which the values
of currencies are fixed in relation to one another
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Vocab25
flexible exchange rates system that relies on
supply and demand to determine the value of one
currency in terms of another
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Vocab26
floating exchange rates system that relies on
supply and demand to determine the value of one
currency in terms of another
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Vocab27
trade deficit balance of payments outcome when
spending on imports exceeds revenues received
from exports
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Vocab28
trade surplus balance of payments outcome when
revenues received from exports exceed spending on
imports
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Vocab29
trade-weighted value of the dollar index showing
strength of the U.S. dollar against a group of
major foreign currencies
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Vocab30
secure obtain
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Vocab31
persistent continuous, without signs of weakening
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