UNIT 4 INTERNATIONAL TRADE LESSON 1 WHY TRADE

UNIT 4: INTERNATIONAL TRADE LESSON 1: WHY TRADE?

INTRODUCTORY ACTIVITY: 1. Come up with a list of 5 examples of how international trade has impacted your life already today. (8: 30 AM) 2. Come up with a list of twenty items that are present in our room that are the result of international trade.

What is international trade: The process by which a nation sells some of its products and buys items from other nations that it can easily produce itself. Why do nations trade: Nations all benefit when countries Specialize in producing things that it can make more cheaply and easily. THIS IS A KEY POINT!!! The products a nation produces depend on a variety of factors Such as a nation’s Natural Resources, Human Resources, and Economy. Examples of specialization: Saudi Arabia has specialized in the production of Oil China has specialized in the production of Manufactured Goods

What are EXPORTS? Goods that a nation sells to other countries. What are imports? Goods that a nation buys to other countries.

SO WHY TRADE? Essential Question: How do large, wealthy nations with many resources, like the USA, benefit from trade just as much as smaller, poorer nations do? To answer this question we must examine ABSOLUTE AND COMPARATIVE ADVANTAGE. ABSOLUTE ADVANTAGE: The ability to produce more of a good or service than another nation is able to. EXAMPLE: The United States has an absolute advantage over MANY COUNTRIES with MANY GOODS. Specific Example: SO WHY TRADE? Answer: COMPARATIVE ADVANTAGE

COMPARATIVE ADVANTAGE: The ability to produce a good at a Lower opportunity cost. COUNTRY COFFEE (tons) FERTILIZER (tons) USA 25 100 EL SALVADOR 20 5 THE UNITED STATES HAS AN ABSOLUTE ADVANTAGE OVER COLOMBIA IN THE PRODUCTION OF BOTH COFFEE AND FERTILIZER. SO WHY TRADE?

We trade with Colombia because Colombia has a comparative advantage over the United States in the production of coffee. So we trade with Colombia. We will produce all of the fertilizer and Colombia will produce all of the coffee. How will we now get coffee? How will Colombia get fertilizer By trading with each look what happens? Country Coffee (ton) FERTILIZER (ton) USA 0 120 COLOMBIA 50 0

In this situation, Colombia can produce more coffee and the USA can produce more fertilizer. Why? KEY POINT!!!!!!!!! MOST TRADE HAPPENS BECAUSE OF comparative advantage.

BALANCE OF TRADE: Difference between the value of a country’s imports and the value of its exports. What is a trade surplus? A nation exports more than it imports. What is a trade deficit? A nation imports more than it exports. What do we have? Medical Technology, Military, Wheat, Automobile Who do we buy from? China, Mexico, Germany