CHAPTER 18

International Trade
SECTION 1: Specialization and Interdependence SECTION 2: Foreign Exchange and Currencies SECTION 3: Cooperation and Trade Barriers

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SECTION 1
Specialization and Interdependence

Objectives:
 How does specialization encourage trade?  How can absolute advantages influence economic choices?  How can comparative advantages affect a nation’s economy?

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SECTION 1
Specialization and Interdependence

How specialization promotes trade:
 allows nations to become efficient in the production of a few goods and services  encourages countries to trade their goods and services for those they cannot or do not produce well

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SECTION 1
Specialization and Interdependence

How absolute advantages can affect economic choices:
 by promoting overspecialization  by increasing competition in prices for goods and services  leading to an examination of comparative advantages

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SECTION 1
Specialization and Interdependence

How comparative advantages can affect economic choices:
 encouraging and determining specialization  leading to production trade-offs  creating expansion of production possibilities  providing trading benefits

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SECTION 2
Foreign Exchange and Currencies

Objectives:
 Why are foreign exchange rates necessary?  How does a nation determine its balance of payments?  What is the significance of the balance of trade?

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SECTION 2
Foreign Exchange and Currencies

Purposes of foreign exchange rates:
 to determine the value of one country’s currency in relation to another country’s  to permit international trade and payment for goods and services traded

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SECTION 2
Foreign Exchange and Currencies

How a nation determines its balance of payments:
 by recording all payments and receipts occurring between its and other nations’ residents, businesses, and governments  by looking at the balance of trade

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SECTION 2
Foreign Exchange and Currencies

Significance of the balance of trade:
 important factor in determining a nation’s overall balance of payments  determines trade surpluses and deficits

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SECTION 3 Cooperation and Trade Barriers

Objectives:
 Why do nations impose trade barriers?  What are the key arguments made in favor of free trade?  What types of agreements indicate that nations are following a policy of cooperation?
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SECTION 3 Cooperation and Trade Barriers

Reasons nations impose trade barriers:
 to protect domestic industries and jobs from foreign competition  to maintain its standard of living  to prevent overspecialization  to promote fairness  to protect national security
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SECTION 3 Cooperation and Trade Barriers

Key arguments for free trade:
 increases competition  leads to better-quality goods at better prices  promotes economic growth

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SECTION 3 Cooperation and Trade Barriers

Indicators of international cooperation:
 reciprocal trade agreements  regional trade organizations, such as the EU, CARICOM, ASEAN, and MERCOSUR  international trade agreements, such as GATT, the WTO, and NAFTA  multinational corporations
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CHAPTER 18

Wrap-Up
1. Why might a nation practice specialization? 2. Explain the difference between absolute advantage and comparative advantage. 3. What effect does currency depreciation have on a nation’s exports and imports? 4. What are the three principal types of trade barriers? Explain how each works to restrict international trade. 5. How has the advent of e-commerce affected trade?
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