Chapter 20

Explains why countries trade with each other and how trade almost always beneficial for everyone involved

Absolute advantage

A country that can produce a good using fewer resources (example:fewer hours of labor) than another country. 

Comparative advantage

Country that can produce a good at a lower opportunity cost than another country

Opportunity cost

What a country gives up to get something else

Countries specializing in producing good

Comparative advantage

Intra-industry trade

High-income countries trade similar goods with each other(the U.S. both exports and imports cars)

Splitting up the value chain

parts from Korea are assembled in china for a product designed in the U.S.

International trade benefits producers

Allows a few large, super-efficient factories to supply products tot he whole world. Lowers avergae production costs.

International trade benefits consumers

Lower prices and much wider variety of products to choose from

Trade barriers

Tarrifs, taxes goverments place on imported goods to make them more expensive

WTO

World trade organization, works to negotiate lower trade barriers between countries