Economics Unit 6 (Chapter 15)

International Trade

The buying and selling of goods/services between countries

Export

Goods/services produced domestically and sold abroad

• Major U.S. Export: Capital goods (machines)

Import

Goods/services produced abroad and purchased domestically

• Major U.S. Import: Consumer goods and industrial supplies

Primary U.S. Trading Partners

Canada, Mexico, and EU (European Union) countries

Comparative Advantage

A country when it can produce a good at a lower opportunity cost than another country

• Countries benefit by specializing in producing goods with lowest opportunity cost

Specialization (+ comparative advantage)

Focusing on doing one specific job or making just a few types of products really well

• According to comparative advantage, specialization increases total world output

Free Trade (+ comparative advantage)

Unrestricted movement of goods between countries

• Free trade allows countries to benefit from comparative advantage

Protectionism

Restricting trade through various policies

Tariff (Trade Restriction Tools)

Taxes on imports that raise prices and reduce quantity demanded

Quota (Trade Restriction Tools)

Limits on quantity of goods that can enter a country

Embargo (Trade Restriction Tools)

Complete bans on trade in specific products

Infant Industry

An industry in the early stage of its development

Free Trade Arguments

• Allows for specialization and more efficient resource use

• Increases available quantity of goods with no quotas

• Lowers prices without tariffs

• Increases competition benefiting consumers

Protectionist Arguments

• Protects infant industries from foreign competition

• Supports domestic output and employment

• Allows economic diversification

• Maintains national security in strategic sectors