INTERNATIONAL TRADE

INTERNATIONAL TRADE
 the ____________, ____________, and ______________ of goods and services between nations

WHY COUNTRIES TRADE

 It is economically beneficial to the countries participating in the trade
a) the distribution of economic resources
- each nation has different natural and capital resources which may not be available at all or in the same
quantity as in other nations
b) the production of certain goods my require specific combinations of various resources

BASIS FOR TRADE:

 SPECIALIZATION
- promotes efficient use of available resources
- countries should specialize in commodities that give them an _____________ in production over other
countries
- Brings forth ___________________________________________
 FACTOR ABUNDANCE
- the abundance or scarcity of factors of production
 FACTOR CONTENT
- The amounts of factors of production used in the production of goods or services
a) PRINCIPLE OF ABSOLUTE ADVANTAGE
- Two countries both specialize in two products; _____________ and _____________.
Product A Product B
_____________ can produce 6 crates of ___________, and 3 sacks of ____________ per unit of labor.
Country 1 Product A Product B
_____________ can produce 2 crates of __________ and 14 sacks of ____________ per unit of labor.
Country 2 Product A Product B
_____________ has absolute advantage over __________ when it comes to the production of _______.
Country 1 Country 2 Product A
_____________ has absolute advantage over ____________ in the production of ___________.
Country 2 Country 1 Product B
If __________ concentrates on the production of __________ instead of both ________ and ________,
Country 1 Product A Product A Product B
and if ___________ concentrates on the production of ____________ instead of both commodities,
Country 2 Product 2
and _____________ and _____________ trade (__________’s __________ and ________’s ________)
Country 1 Country 2 Country 1 Product A Country 2 Product B

– then both countries will be better off.

- The ability to produce a good at lower cost, in terms of real resources, than another country.

b) PRINCIPLE OF COMPARATIVE ADVANTAGE

- Two countries specialize in two products; porcelain and coconuts. Country C can produce 12 tons of
porcelain and 6 containers of coconuts per unit of labor. Country D can produce 2 tons of porcelain and
4 containers of coconuts per unit of labor. It is clear that Country C has the absolute advantage over
Country D in the production of both goods. Country C is more efficient in producing porcelain rather
than coconuts while Country D is more efficient in producing coconuts rather than porcelain.
 Considering opportunity cost, Country C must choose not to produce 12 tons of porcelain in order to
produce an additional 6 containers of coconut. To produce an additional 4 containers of coconut,
Country D must only give up producing 2 tons of porcelain. So, Country D has the comparative
advantage in the production of coconut over Country C.
- The ability to produce a good at lower cost, relative to other goods, compared to another country. 
- general basis for specialization and trade
LAW OF COMPARATIVE ADVANTAGE: Countries must export goods and services wherein they have comparative
advantage and import goods and services wherein they do not have comparative advantage.

GAINS and LOSSES OF INTERNATIONAL TRADE

GAINS
 Monetary gains to the respective country indulging in trade.
 Larger variety of goods available for consumers.
 Better quality of goods.
 Local and international competition
 Closer ties between nations
 Increase in the exchange of information
 Improvement of local products
 Increase in employment locally
LOSSES
 Local production may suffer
 Local industries may be overshadowed by their international competitors
 Rich countries may influence political matters in other countries and gain control over weaker nations.
 Ideological differences may emerge between nations with regard to the procedures in trade practices.

FREE TRADE & PROTECTIONISM

FREE TRADE
– Government does not interfere in international trade
PROTECTIONISM
– Economic policy made by the government to restrain, _____________, and restrict trade between nations.
a) Protect local industries and prevent foreign investments from taking over the market
b) Protects local industries or companies from extra competition
c) Helps country’s businesses develop
d) Protect local jobs
e) Prevents “dumping” of cheap imports (cheap excess goods from other countries cost more in the
local market because of the added tariff imposed by the government)
f) Regulates import (banned products)
– Methods of Protectionism / ____________
1. Tariffs or ___________
- Taxes on imported goods which _________ the price of the commodity and in turn doesn’t
encourage buying
2. Quotas
- Limits the quantity of ________________.
3. Regulations
- Laws and safety guidelines

TO _________ THE FATE OF ONE'S NEIGHBORS IS TO ________ POVERTY

NO NATION CAN PROSPER IN ___________, neglecting to export __________ will eventually _________hard times.
Sources: http://tutor2u.net/economics/gcse/revision_notes/international_trade_protectionism_trade_barri
http://www-personal.umich.edu/~alandear/glossary/ ers_and_free_trade.htm
http://www-personal.umich.edu/~alandear/glossary/c.html#ca faculty.washington.edu/beyers/Chapter12_Warf.ppt
http://www- Introduction To Economics (Bello, et al.)
personal.umich.edu/~alandear/glossary/d.html#DirectPlusIndirectFactorContent Norman P. Uy (Interview: Feb. 15, 2010)