Download INTERNATIONAL

INTERNATIONAL
ECONOMICS
• SSEIN1 The student will explain why individuals, businesses, and
governments trade goods and services.
• a. Define and distinguish between absolute advantage and
comparative advantage.
• b. Explain that most trade takes place because of comparative
advantage in the production of a good or service.
• c. Explain the difference between balance of trade and balance of
payments.
a. Define and distinguish between absolute
advantage and comparative advantage.
• Comparative Advantage – ability to produce a good or service at a
lower opportunity cost than some other producer. This is the basis
for specialization and trade.
• Absolute Advantage – ability to produce more units of a good or
service than some other producer, using the same quantity of
resources.
b. Explain that most trade takes place because of
comparative advantage in the production of a
good or service.
• - idea that everyone benefits from trade
• Nations focus on producing the good at which productivity advantage is the
greatest, or at which its productivity disadvantage is the smallest.
• International trade offers economic benefits for other reasons:
• Increases competition between firms
• Increases variety for consumers
• Often increases level of training in accounting, management and law in lowincome countries
• Disseminates new technology and production methods
C. Explain the difference between balance of trade
and balance of payments.
• Balance of Trade
• Exports minus imports
• If exports exceed imports, nation
has a trade surplus.
• If imports exceed exports, nation
has a trade deficit.
• No reason to expect them to be
even, but deficits for many years
should concern countries because
they can’t keep consuming high
levels of imports forever.
• Lower exchange rates should
cause imports to fall and exports
to rise in the future.
• Balance of Payments
• Record of all transactions
between individuals, firms and
governments of one country with
those in all other countries in a
given year, expressed in monetary
terms.
• Refers to funds received by a
country and those paid by a
country for all international
transactions.
• SSEIN2 The student will explain why countries sometimes erect trade
barriers and sometimes advocate free trade.
a. Define trade barriers as tariffs, quotas, embargoes, standards, and subsidies.
b. Identify costs and benefits of trade barriers over time.
c. List specific examples of trade barriers.
d. List specific examples of trading blocks such as the EU, NAFTA, and ASEAN.
e. Evaluate arguments for and against free trade.
a. Define trade barriers as tariffs, quotas,
embargoes, standards, and subsidies.
• Tariff: tax on imported good/service
• Quota: limit on quantity of a product that may be exported or
imported.
• Embargo: imposing certain conditions before granting consent.
(Portuguese and Spanish word – means meeting an order issued by
authority to prevent ships leaving port for a fixed period of time.
• Standards: expectations for minimal levels of quality to be met.
• Subsidies: financial assistance granted by a government to promote
an enterprise considered beneficial to the public welfare.
B. Identify costs and benefits of trade barriers over
time.
Costs/Benefits to Trade Barriers
• Pros
• Protects workers who would
be hurt by foreign
competition.
• Protects new industries
• Keeps vital industries going
that we would need in event
of war.
• Cons
• If the foreign country can do it more
efficiently, we benefit from lower prices
they can offer.
• Less incentive for new industry to be
efficient and competitive while
protected.
• Once a business has tariff protection
it’s hard to take it away.
• Some industries claim to be essential
and get help when they may not be.
• Higher prices for imports
• Job loss in export industries that face
retaliatory trade barriers.
c. List specific examples of trade barriers.
• Barriers to trade are government rules that block or
inhibit international trade between countries.
• Common trade barriers:
• Tariffs, quotas, administrative regulations and procedures.
d. List specific examples of trading blocks such as the EU,
NAFTA, and ASEAN.
European Union (EU)
• European Union – 1993
• Formed to get rid of trade restrictions and tariffs among
members, adopt uniform tariffs for nonmembers.
• Originally the Common Market (1957)
• Has a Parliament and council with reps from each nation.
• Has own flag, anthem, celebrates Europe Day May 9
• Replaced individual currencies with a single currency –
the euro. (except for UK)
• Austria, Belgium, Cyprus, Czech Republic, Denmark,
Estonia, Finland, France, Germany, Greece, Hungary,
Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta,
Poland, Portugal, Slovakia, Slovenia, Spain, Sweden,
Netherlands, UK)
European Union, cont.
far more than a free-trade association such as
ASEAN, NAFTA, or Mercosur
- has many of the attributes associated with
independent nations: its own flag, anthem,
founding date, and currency, as well as common
foreign and security policy in its dealings with other
nations.
-
NAFTA – Canada, US, MX
• NAFTA (North American Free
Trade Agreement)
• 1994
• Eliminate all tariffs and trade
barriers between Canada, Mexico,
and US by 2009.
• Largest free trade zone in the
world.
• Opponents worry about loss of
American jobs b/c of lower wages
and fewer restrictions in Mexico.
• Supporters claim it will create jobs
in US because of increased exports
to Mexico and Canada.
• Statistics so far show increased
trade, but not increased jobs.
Trade blocs
• ASEAN – Association of Southeast Asian Nations
• 1967
• Promote growth of the region (economically, socially, culturally)
• Promote regional peace and stability (abide by UN charter)
• Assist each other in training, research and education.
• Collaborate in industry, agriculture and expansion of trade.
e. Evaluate arguments for and against free trade.
Pros and Cons of free trade
• Pros
• Best way to pursue
comparative advantage
• Raises general standard of
living
• International peace
• Competition leads to
efficient production, less
waste of resources
• Lower prices for
consumers
• Cons
• Need to protect American
businesses and jobs
• Need to protect new industries
that are just getting started
• Protect national security – keep
vital businesses going
• Unemployment in countries with
inefficient, costly production.
• SSEIN3 The student will explain how changes in exchange rates can
have an impact on the purchasing power of individuals in the
United States and in other countries.
a. Define exchange rate as the price of one nation’s currency in terms
of another nation’s currency.
b. Locate information on exchange rates.
c. Interpret exchange rate tables.
d. Explain why, when exchange rates change, some groups benefit and
others lose.
Exchange Rates Table
a. Define exchange rate as the price of one nation’s
currency in terms of another nation’s currency.
b. Locate information on exchange rates.
c. Interpret exchange rate tables.
USD
EUR
GBP
JPY
CHF
CAD
AUD
NZD
HKD
SGD
USD
1
0.7314
0.626
83.46
0.9948
1.0185
1.0144
1.2851
7.7543
1.2964
EUR
1.3672
1
0.85583
114.095
1.36005
1.3925
1.387
1.7569
10.6012
1.7723
GBP
1.59736
1.1684
1
133.315
1.5891
1.6271
1.6207
2.0528
12.3875
2.0708
JPY
0.012
0.008765
0.0075
1
0.011919
0.012205
0.0122
0.0154
0.0929
0.0155
CHF
1.0053
0.7352
0.6293
83.905
1
1.0239
1.02
1.2918
7.795
1.3032
CAD
0.9818
0.7185
0.6147
81.935
0.9766
1
0.9959
1.2617
7.6127
1.2728
AUD
0.98565
0.7209
0.617
82.255
0.9805
1.0039
1
1.2666
7.6427
1.2777
NZD
0.7782
0.5691
0.4871
64.94
0.7741
0.7926
0.7896
1
6.034
1.0089
HKD
0.129
0.0943
0.0807
10.7632
12.8295
0.1313
0.1308
0.1657
1
0.1672
SGD
0.7713
0.5641
0.4829
64.39
0.7674
0.7864
0.7822
0.9912
5.9816
1
d. Explain why, when exchange rates change, some
groups benefit and others lose.
How do changes in exchange rates affect
international trade?
• Increase in value of a currency (appreciation) means the
currency has become stronger.
• Products become more expensive in other countries.
• If goods are more expensive, other countries will probably import
fewer products from that country.
• Foreign products will be less expensive for consumers in the country
with the strong currency, so consumers will buy more foreign
products.
What if the value of the currency decreases?
• That’s depreciation.
• The nation’s products become less expensive in other
countries.
• If goods are less expensive, other countries will probably
import more from that country.
• Foreign goods will cost more in the country with the weak
currency, they will buy less foreign products.
What about U.S.??
• Strong dollar – exports decline – imports rise.
• Weak dollar – exports rise – imports decline
Winners and Losers?
• If the dollar is strong and exports are expensive - American businesses
are the losers because no one wants to buy their products overseas.
• If the dollar is strong against the Euro or the British pound, then the
American tourist is the winner because they can travel more cheaply.
The foreign tourist would be the loser because their trip to America
would be more expensive.
• If the dollar is weak and exports are less expensive then American
businesses are the winner because American products are cheaper for
consumers in foreign countries.
• If the dollar is weak against the Euro or the British pound, etc. then
American tourists lose because their vacation will be more expensive.
The foreign tourist coming to America would win because their trip to
America would be cheaper.