1.4 International Trade & 1.5 Trade

Specialization

a method of production where a person, or a group of people, focuses on the production of a limited scope of goods to become more efficient. 

• When you focus on one task, become a master at that skill

The role of government

• The market has a hard timme providing public goods and externalties

  • Examples of Public Goods: education, roads, research, national security, clean environments, beaches, and more!

• For a good to be a public good, it needs to be nonexcludable

  • Nonexcludable means that "the cost of keeping nonpayers from enjoying the benefits of the good or service is prohibitive." 

Comparative Advantages

Occurs when one person or producer can produce at a lower opportunity cost than another person or producer

Voluntary exchange

The act of buyers and sellers freely and willingly engaging in market transactions

Absolute Advantage

The ability to produce more units of a good or serivce than some other producer more effciently, using all of their resources

• When a worker in one country can produce more of a good than a worker in another country.

• One country has much more of an available resource than another because of climate, geology, etc.

Tariff

Tax on imports

Quota

Values based or physical limits on how much can be imported

• Illegals goods have a zero-import quota

Embargo

Ban on all or nearly all trade

• Used to influence political actions

• Punishing another country by not trading with them

Standard

Regulations on testing, quality, classification, labeling of imported goods and services

Subsidy

• Financial assistance to a company or industry by the government

• Used to help keep them competitive

Role of government: currency

Each country (or region, in the case of the EU) has to produce its own money/currency.

• Decisions:

  • Color? Size? Materials?

  • Anti-counterfeit measures.

Exchange rates

The value of one currency for the purpose of conversion to another

• Net exports = Exports - imports

Appreciation

Value of money goes up

• Good: Foreign products are cheaper

• Bad: Our products are more expensive to other countries

Depreciation

Values of money goes down

• Good: Foreign countries buy more of our products

• Bad: Foreign products become more expensive