Download Specialization

Specialization and Trade
Specialization
“Do what you do best; trade for the rest!”
•
Attempting to produce everything you
want to consume yourself limits both
your production and consumption
possibilities.
•
To specialize, you must figure out
what you “do best.” Economists define
“best” as that which you produce at the
lowest opportunity cost.
•
“Trading for the rest” by “selling” the
goods or services you can produce at
low opportunity costs and then
“buying” things you would produce at a
high opportunity cost requires division
of labor.
•
Specialization and trading goods and
services with others can help
everyone.
Specialization
• Specialization encourages
trade and can be a positive
factor in a country’s economy.
Specialization occurs when
one nation can produce a good
or service at a lower
opportunity cost than another
nation.
• Sometimes, specialization has
not functioned as expected.
What are the potential
problems of over-specialization
such as one-crop economies
and lack of diversification?
How can this impact a region’s
economy?
Currency Exchange
•
Before people from different countries can
buy or sell anything to each other, they have
to solve a basic problem.
•
Buyers have to be able to change their
money from their country's currency to the
seller's national currency. This is called
"foreign exchange."
•
Each currency, whether it's the US dollar or
the Haitian gourde, has a value in terms of
other currencies. This is the "exchange
rate."
•
Without a reliable supply of foreign
exchange in each country, and without
relatively stable exchange rates, world trade
would drop drastically.
•
You wouldn't be wearing tennis shoes made
in Asia, or eating an apple grown in New
Zealand.
Exchange rates
• Exchange rates provide a
procedure for determining
the value of one country’s
currency in terms of
another country’s
currency.
• Without a system for
exchanging currencies, it
would be very difficult to
conduct international
trade.
Barriers to Trade
•
A tariff is a tax placed on goods
that one nation imports from
another.
•
Many nations use tariffs to protect
their industries from foreign
competition.
•
Tariffs provide protection by acting
to raise the price of imported
goods.
•
Thus, tariffs encourage domestic
firms to increase their production,
and consumers are forced to pay
higher prices for the protected
goods.
Import quotas
• Import quotas offer another
means of protectionism.
• These quotas set a limit on the
amount of certain goods that
can be imported into a country
and tend to be more effective
than protective tariffs, which do
not always stop consumers
who are willing to pay a higher
price for an imported good.
Embargo
•
An embargo is an order designed
to stop the movement of goods.
•
An embargo, issued by the
government of one country, may
restrict or suspend trade between
that country and another nation.
•
A government may impose an
embargo to hamper the military
efforts of another government.
•
For example, the United States
prohibits the export of weapons to
countries that sponsor terrorism.
•
Sometimes a government imposes
an embargo to express its
disapproval of actions taken by
another government. The embargo
is intended to pressure the offending
government to change its actions.
How do Economies Grow?
Factors of Production
• There are four factors - land,
labor, capital, entrepreneurship
- that influence economic
growth.
• Capital is split into two
categories: human and
physical.
• Economic growth is usually
measured by calculating the
percent increase in GDP from
one year to the next. This is
known as the GDP Growth
Rate.
How do Economies Grow?
Resources that influence economic growth
•
Land provides the basic raw materials-vegetation, animals, minerals, fossil fuels--that
are inputs into the production of goods (natural
resources).
•
Labor is the resource that does the "hands on"
work of transforming raw materials into goods.
•
Capital is the comprehensive term for the vast
array of tools, equipment, buildings, and
vehicles used in production.
•
Entrepreneurship is the resource that
undertakes the risk of bringing the other
resources together and initiating the production
process.
•
LAND: This category sometimes extends over
all natural resources. It is intended to represent
the contribution to production of nonhuman
resources as found in their original, unimproved
form. A material source of wealth, such as
timber, fresh water, or a mineral deposit, that
occurs in a natural state and has economic
value
•
LABOR: human effort used in production which
also includes technical and marketing expertise
How do Economies Grow?
Resources that influence economic growth
•
CAPITAL RESOURCES: humanmade goods which are used in the
production of other goods. These
include machinery, tools, factories
and other buildings, and
technology.
•
HUMAN CAPITAL – education
and training of workers whether
formal or on-the-job
•
ENTREPRENEURSHIP:
Entrepreneurship is a special sort
of human effort that takes on the
risk of bringing labor, capital, and
land together and organizing
production. Entrepreneurs
combine the other factors of
production, land, labor, and capital
in an innovative way to make a
profit.
Investment and GDP
•
Investment in improving a nation's capital
resources and/or human capital results in
economic growth and improved GDP.
•
Failure to improve these types of capital, or
the inability to improve them results in no
growth of GDP.
•
Nations which have valuable minerals such
as diamonds, gold, uranium, and/or
petroleum can profit from the income that
the extraction and sale of these minerals,
which will increase the national GDP.
•
Sometimes this money is stolen by corrupt
leaders, but when the income is used to
improve the nation's infrastructure, the
citizens may benefit.
•
Highly developed economies like the USA
and Israel have smaller growth rates
because the size of these economies are
already so large.