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Transcript of Splash Screen. Chapter Menu Chapter Introduction Section 1:Section 1:Absolute and Comparative...
Splash Screen
Chapter Menu
Chapter Introduction
Section 1: Absolute and Comparative Advantage
Section 2: Barriers to International Trade
Section 3: Foreign Exchange and Trade Deficits
Visual Summary
Chapter Intro 1
You and a classmate are planning to open a lawn-service business. You will each contribute $200 toward the purchase of a mower, gas can, trimmer, and other materials for the business. Now it is time to get organized. Work with a classmate and make a list of the different “jobs” associated with your lawn-service business. What criteria will you use to divide up these jobs? Why? Read Chapter 16 to find out how nations make decisions about what to produce and trade with other nations.
Chapter Intro 2
Trade and specialization lead to economic growth for individuals, regions, and nations.
Chapter Intro-End
Section 1-Preview
Section Preview
In this section, you will learn that comparative advantage is the basis for international trade.
Section 1-Key Terms
Content Vocabulary
• exports
• imports
• absolute advantage
• production possibilities frontier
Academic Vocabulary
• volume • enabled
• comparative advantage
• opportunity cost
A. A
B. B
C. C
D. D
Section 1
A B C D
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What products do you think the state of Texas primarily trades?
A. Citrus fruits
B. Oil and cattle
C. Cattle and wine
D. Computers
Section 1
Why Nations Trade
Trade allows nations to specialize in some products and then trade them for goods and services that are more expensive to produce.
Section 1
Why Nations Trade (cont.)
American Dependence on Trade
• Reasons to trade
– Some countries lack essential raw materials.
– Specialization
• Exports
• Imports
Section 1
Why Nations Trade (cont.)
• Sheer volume of trade between nations is proof that trade is beneficial.
U.S. Merchandise Trade by Area
A. A
B. B
C. C
D. D
Section 1
A B C D
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The United States imports goods that amount to approximately how much per capita?
A. $8,500
B. $6,500
C. $5,500
D. $2,500
Section 1
The Basis for Trade
Trade works best when countries focus on those products they can produce best.
Section 1
• Countries find it cheaper to import some products than to manufacturer them.
• Absolute advantage—country can produce more of a product than another country.
The Basis for Trade (cont.)
Section 1
• Production possibilities frontier—diagram illustrating the maximum combinations of goods and/or services one can produce utilizing fully employed resources.
The Basis for Trade (cont.)
The Gains from Trade
Section 1
• Countries with an absolute advantage benefit from trade with another country whenever it has a comparative advantage because its opportunity cost is lower than another country’s.
• Total world output grows when there is specialization and trade among nations.
The Basis for Trade (cont.)
A. A
B. B
C. C
D. D
Section 1
A B C D
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What happens to world output when there is specialization and international trade?
A. Growth is slow but worthwhile.
B. Growth is significant in concentrated areas.
C. No additional growth in output takes place.
D. There is a drop in world output.
Section 1-End
Section 2-Preview
Section Preview
In this section, you will learn that nations use tariffs and quotas to protect special interests, while the free trade movement tries to eliminate trade barriers.
Section 2-Key Terms
Content Vocabulary
• tariff
• quota
• protective tariff
• revenue tariff
• protectionists
• free traders
• infant industries argument
• balance of payments
Academic Vocabulary
• imposed • justify
• most favored nation clause
• World Trade Organization (WTO)
• North American Free Trade Agreement (NAFTA)
A. A
B. B
C. C
Section 2
Would you purchase a cell phone imported from Japan just because the price is a few dollars less than the one manufactured here?
A. Yes, saving money is my goal.
B. No, a few extra dollars in my pocket doesn’t compare to lost American jobs.
C. It depends. A B C
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Section 2
Restricting International Trade
Tariffs and quotas are the main ways to restrict international trade.
Section 2
Restricting International Trade (cont.)
• Restrictions to trade
– Tariff
• Protective tariff
• Revenue tariff
– Quota
– Imported foods subjected to rigorous health inspections
Section 2
Restricting International Trade (cont.)
• Restrictions to trade
– Requiring a license to import
– Culture and nationalism
A. A
B. B
Section 2
Before the Civil War, tariffs were used largely to generate revenue for the federal government.
A. True
B. False
A B
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Section 2
Arguments for Protection
Protectionists disagree with free traders over the best way to protect a country’s independence, industries, and workers.
Section 2
• Protectionists and free traders are constantly in debate.
Arguments for Protection (cont.)
– National defense
– Infant industries argument
– Protecting American jobs
– Keeping the money at home
– Balance of payments
– National pride
A. A
B. B
C. C
Section 2
The United States imports significantly more products from China than it exports. The balance of payments is therefore significant. With which side of the debate do you align yourself?
A. Protectionists
B. Free traders
C. Neither 0% 0%0%
Section 2
The Free Trade Movement
Because tariffs hurt more than they helped during the Great Depression, the United States has found ways to reduce trade restrictions.
Section 2
• Smoot-Hawley Tariff Act passed in 1930
The Free Trade Movement (cont.)
– One of most restrictive tariffs in U.S. history
– Import duties so high that other countries did same
– International trade nearly ceased
Section 2
• Reciprocal Trade Agreements Act passed in 1934
The Free Trade Movement (cont.)
– Reduced tariffs up to 50% if other countries did the same.
– Most favored nation clause
• General Agreement on Tariffs and Trade (GATT) in 1947
Section 2
• World Trade Organization (WTO) replaced GATT.
The Free Trade Movement (cont.)
– Administers trade agreements signed under GATT
– Settles trade disputes between nations
– Organizes trade negotiations
– Provides tech assistance and training to developing countries
Section 2
• North American Free Trade Agreement (NAFTA)
The Free Trade Movement (cont.)
– Has allowed NAFTA partners to capitalize on their comparative advantages
A. A
B. B
C. C
D. D
Section 2
A B C D
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If you were in charge of trade for all businesses or government agencies in your community, which trade practices would you engage in?
A. Quotas
B. Tariffs
C. Most favored nation clause
D. None of the above
Section 2-End
Section 3-Preview
Section Preview
In this section, you will learn that a long-lasting trade deficit affects the value of a nation’s currency as well as the value and volume of its exports and imports.
Section 3-Key Terms
Content Vocabulary
• foreign exchange
• foreign exchange rate
• fixed exchange rates
• flexible exchange rates
• floating exchange rates
Academic Vocabulary
• secure • persistent
• trade deficit
• trade surplus
• trade-weighted value of the dollar
A. A
B. B
C. C
Section 3
Which do you think is better for the U.S. economy?
A. Strong dollar
B. Weak dollar
C. Doesn’t matter
A B C
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Section 3
Financing International Trade
International trade relies on the ability to exchange foreign currencies.
Section 3
Financing International Trade (cont.)
• Supply and demand causes the dollar and other international currency to fluctuate daily.
• Foreign exchange—different currencies are bought and sold for international trade
• Foreign exchange rate—price of one country’s currency in terms of another country’s
Foreign Exchange Rates
Section 3
Financing International Trade (cont.)
• Two major kinds of exchange rates exist:
– Fixed exchange rates
– Flexible exchange rates or floating exchange rates
Flexible Exchange Rates
Section 3
Financing International Trade (cont.)
• Whenever the dollar falls—exports tend to go up and imports down. If dollar rises, the reverse is true.
The Global Economy & YOUBig Mac Index
A. A
B. B
C. C
D. D
Section 3
A B C D
0% 0%0%0%
Would the price of a pair of Levi jeans in Russia be the same as the price here in the United States?
A. No, price in Russia would beovervalued against the dollar.
B. No, price in Russia would beundervalued against the dollar.
C. Yes, price would be the same.
Section 3
Trade Deficits and Surpluses
The strength of the dollar affects trade and therefore trade deficits and surpluses.
Section 3
• The international value or strength of the dollar affects trade:
Trade Deficits and Surpluses (cont.)
– Trade deficit
– Trade surplus
Section 3
• Federal Reserve System tracks the trade-weighted value of the dollar.
Trade Deficits and Surpluses (cont.)
International Value of the Dollar
– If index falls—dollar is weak in relation to other currencies.
– If index rises—dollar is strong.
Section 3
• A persistent trade imbalance can affect income and employment.
• No net gain in having a strong or a weak dollar—one sector is helped, another hurt.
Trade Deficits and Surpluses (cont.)
Profiles in Economics:Jerry Yang
A. A
B. B
C. C
D. D
Section 3
A B C D
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What is the result of U.S. exports when the dollar is strong?
A. U.S. imports decline.
B. Exports become cheaper for other nations.
C. U.S. imports increase.
D. U.S. trade surplus results.
Section 3-End
Absolute and Comparative Advantage A country has absolute advantage when it can produce more of a product than can another country. It has comparative advantage when it can produce a product at a lower opportunity cost than another country. When countries focus on those products for which they have comparative advantage, world production increases.
VS 1
VS 2
Free Trade Movement After strict tariffs severely limited world trade during the early years of the Great Depression, the United States and other countries worked to open trade.
VS 3
Trade Deficits and Surpluses The strength of the dollar affects the balance of trade of the United States.
VS-End
Figure 1
Figure 2
Figure 3
Figure 4a
Figure 4b
Figure 5
Figure 6
Figure 7
Profile
Jerry Yang (1968– )
• cofounder of the Internet Web portal Yahoo!
• became a billionaire three years after starting the company
• ranked on Forbes’s list of the world’s richest people
Concept Trans Menu
Economic Concepts Transparencies
Transparency 20 Absolute and Comparative Advantage
Transparency 21 Exchange Rates and Balance of Payments
Select a transparency to view.
Concepts Trans 1
Concepts Trans 2
DFS Trans 1
DFS Trans 2
DFS Trans 3
Vocab1
exports
the goods and services that a nation sells to other nations
Vocab2
imports
the goods and services that a nation buys from other nations
Vocab3
absolute advantage
country’s ability to produce more of a given product than another country can produce
Vocab4
production possibilities frontier
diagram showing the maximum combinations of goods and/or services an economy can produce when all resources are fully employed
Vocab5
comparative advantage
country’s ability to produce a given product relatively more efficiently than another country by doing it at a lower opportunity cost
Vocab6
opportunity cost
cost of the next-best alternative use of money, time, or resources when making a choice
Vocab7
volume
amount; quantity
Vocab8
enabled
made possible
Vocab9
tariff
tax placed on an imported product
Vocab10
quota
limit on the amount of a good that is allowed into a country
Vocab11
protective tariff
tax on an imported product designed to protect less-efficient domestic producers
Vocab12
revenue tariff
tax placed on imported goods to raise revenue
Vocab13
protectionist
person who wants to protect domestic producers against foreign competition with tariffs, quotas, and other trade barriers
Vocab14
free trader
person who favors fewer or even no trade restrictions
Vocab15
infant industries argument
argument that new and emerging industries should be protected from foreign competition until they are strong enough to compete
Vocab16
balance of payments
difference between money paid to, and received from, other nations in trade
Vocab17
most favored nation clause
trade law allowing another country to enjoy the same tariff reductions the United States negotiates with any third country
Vocab18
World Trade Organization (WTO)
international agency that administers trade agreements, settles trade disputes between governments, organizes trade negotiations, and provides technical assistance and training for developing countries
Vocab19
North American Free Trade Agreement (NAFTA)
agreement signed in 1993 to reduce tariffs and increase trade among the United States, Canada, and Mexico
Vocab20
imposed
established; applied
Vocab21
justify
to defend as warranted or necessary
Vocab22
foreign exchange
various currencies used to conduct international trade
Vocab23
foreign exchange rate
price of one country’s currency in terms of another country’s currency
Vocab24
fixed exchange rate
system under which the values of currencies are fixed in relation to one another
Vocab25
flexible exchange rates
system that relies on supply and demand to determine the value of one currency in terms of another
Vocab26
floating exchange rates
system that relies on supply and demand to determine the value of one currency in terms of another
Vocab27
trade deficit
balance of payments outcome when spending on imports exceeds revenues received from exports
Vocab28
trade surplus
balance of payments outcome when revenues received from exports exceed spending on imports
Vocab29
trade-weighted value of the dollar
index showing strength of the U.S. dollar against a group of major foreign currencies
Vocab30
secure
obtain
Vocab31
persistent
continuous, without signs of weakening
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