Economics in the Middle East

Unit 3

Standards SS7E6a. Explain how specialization encourages trade

between countries.

SS7E6b. Compare and contrast different types of trade barriers, such as tariffs, quotas, and embargos.

SS7E6d. Explain why international trade requires a system for exchanging currencies between nations.

SS7E6a. Explain how specialization encourages trade between countries.

What is specialization? When a country or company focuses on

producing a certain type of good or service. The types of natural, human, and capital

resources determine what a country specializes in.

For example, the Middle Eastern countries near the Persian Gulf specialize in producing and exporting oil.

How does it encourage trade? When a country specializes it means they spend

time and money on making the good or service the best they can. Purchasing this from them ensures you are getting quality products or services.

It also helps to have something to return or export to their country.

SS7E6b. Compare and contrast different types of trade barriers, such as tariffs, quotas, and embargos.

What are trade barriers? A trade barrier is any law or practice that a

government uses to limit free trade between countries.

Tariffs – a tax on imported goods Quotas – a limit on the quantity of goods Embargos – refusal to trade with another country

Tariffs Think of the three Ts (Tax + Trade = Tariff) Governments of countries do this for two

reasons: To make money by charging foreign companies

or countries to trade To help domestic companies stay competitive

with foreign companies by making the foreign goods more expensive

Quota Sometimes is it called an import quota

because it refers to the number of imported goods in a given period of time. The United States might limit the number of

Japanese automobiles we import into the country so that our domestic companies like Ford or GM can stay in business with the competition.

Embargo Think of an embargo as a way to punish

other countries economically without having to go to war. In the 1970’s OPEC nations tried to punish the

US for supporting the country of Israel by stopping the producing of oil which increased the price and hurt our economy.

In the early 1990’s countries refused to trade with Iraq following the invasion of Kuwait .

SS7E6d. Explain why international trade requires a system for exchanging currencies between nations.

Currency exchange is the trading of one form of money for another so that international trade can take place. Imagine what would happen if we didn’t have this

and no one would take another countries money…