Free Trade

Three Rules to Free Trade

1. Trade must be voluntary.

2. All trading parties must benefit.

3. Trade move products from people who value them less, to people who value them more.

Why Do We Trade?There are 6 reasons…

1. Natural Resources – Materials found in nature that is used to make a good or service.

2. Human Capital – Knowledge of making the good/ providing the service.

3. Physical Capital – Objects used to produce the good or service.

Why Do We Trade?There are 6 reasons…

4. Economic Activity Patterns – Producing, exchanging, consuming, saving, & investing.

5. Unequal Distribution of Resources – Knowledge of making the good/ providing the service.

6. Need for Trade – Objects used to produce the good or service.

TRADE SIMULATION

Clear your desks please…..some things toconsider…..

1. Trade moves goods from people who value them less to people who value them more.

2. Trade allows us to specialize in the things we do best.

3. Trade lowers per-unit costs by using mass production methods and lower labor costs.

Trading Simulation Rules

Goals/Rules

1. Improve your economic situation creating more wealth for your country.

2. Trade must be voluntary.

3. You can trade all or any portion of your bag.

Let the Trading Begin…

After each round, you will rate your overall

satisfaction level with what you have in your

bag.

Round 1: you will be trading with your row only.

Round # 1My satisfaction level after round # 1 is ___________.1. The U.S. has a trade deficit resulting

in a negative trade balance (Japan and China).

2. The U.S. is the largest importer. China is the largest exporter in the world.

Trading PartnersEuropean Union- EU is largest single trading partner with the United States.

25 Member Nations -

Round # 2My satisfaction level after round # 2 is ___________.Protectionism: Use of trade barriers to protect

U.S. goods from foreign competition.Trade Barriers: (restrictions) limit free trade.1. Import Quota - limit on the amount of a good

that can be imported2. Tariff - Tax on imported goods.3. Licensing fees/Patents4. Buy American clauses. * These trade barriers

can lead to a trade war = less trade.

Round # 3

My satisfaction level after round # 3 is ___________.

1995 World Trade Organization (WTO) was established to negotiate new trade agreements, resolve trade disputes, and enforce trading rules.

Quick-Write

Does free trade benefits the poor…..