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Warm-Up: Write the words that match the clues 1. This is used to measure inflation 2. This comes after the “peak” 3. The most attractive alternative given up when a choice is made International Economics SSEIN1 The student will explain why individuals, businesses and governments trade goods and services. SSEIN1.a Define and distinguish between absolute advantage and comparative advantage. SSEIN1.b Explain that most trade takes place because of comparative advantage in the production of a good or service. SSEIN1.c Explain the difference between balance of trade and balance of payments. Then read pp.86-87 and add these words to your notes 1. 2. 3. 4. Absolute advantage Comparative advantage Deficit Surplus International Trade Is it possible for countries to benefit from international trade? What are the costs and benefits? International Trade Absolute Advantage -the ability to produce more of a product than some other producer. International Trade Comparative Advantage -the ability to produce a product at a lower opportunity cost (cheaper) than some other producer. Fritolaysia and Snackistan Chips Dip Fritolaysia 80 100 Snackistan 70 50 Fritolaysia Snackistan 150 150 International Trade • What if one country has the absolute advantage in all products? Will the country be able to gain from trade with others? Read more about absolute and comparative advantage http://www.econlib.org/library/Topi cs/Details/comparativeadvantage. html “International Trade” What are the advantages of trade? • Cheaper products • More customers • More product variety “International Trade” What are the disadvantages of trade? - Dependence on other countries - Labor issues - Hurt domestic businesses Trade Barriers Trade Barriers Use pp. 90-91 (EOCT) pp 449 (textbook) to complete the chart Type of Trade Barrier Tariff Quota Standards Subsidies Embargo Definition Picture or example Trade Barriers 1. The U.S. government continues to make trade with Cuba illegal. Trade Barriers 2. Congress passes a law requiring all foreign-grown vegetables sold in the U.S. be organically grown. Trade Barriers 3. The U.S. government pays farmers 20 cents for each pound of cotton they produce. Trade Barriers 4. Lawmakers in Washington D.C. limit the number of cars Japan can sell in the U.S. Trade Barriers 5. A tax is placed on imported sugar. Wrap-up: 1. Why do countries trade with each other? 2. What is the difference between absolute and comparative advantage?