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Economy and the Middle East SS7E6 The student will explain how voluntary trade benefits buyers and sellers in Southwest Asia (Middle East). a. Explain how specialization encourages trade between countries. b. Compare and contrast different types of trade barriers, such as tariffs, quotas, and embargos. d. Explain why international trade requires a system for exchanging currencies between nations. SS7E7 The student will describe factors that influence economic growth and examine their presence or absence in Israel, Saudi Arabia, and Iran. a. Explain the relationship between investment in human capital (education and training) and gross domestic product (GDP). b. Explain the relationship between investment in capital (factories, machinery, and technology) and gross domestic product (GDP). Specialization • Specialization allows countries to produce the goods and services they do best • This helps them to earn money to buy items they cannot make or grow locally Specialization of Labor: Different people doing jobs that they become specialized in. Example Saudi Arabia: rich in oil and natural gas. They produce oil and trade it on the world market for items such as like food since much of their country is desert and food is not produced efficiently. Trade Barriers • Trade barriers are anything that slows down or prevents one country from exchanging goods with another. Tariffs • Tariff is a tax placed on goods when they are brought in from another country • The purpose is to make the foreign goods more expensive so people will buy local items. Embargo • An embargo is when one country will no longer trade with another country in order to punish it and cause problems with that country’s economy. • Sometimes referred to as sanctions • Usually they occur over political disputes. Example- 1973 OPEC stopped selling oil to the nations who supported Israel Quota • A quota is setting a limit to the amount of foreign goods that can come into a country • Example: In Israel only 1,500 cars from Japan can be brought into that country in a given year. Exchange Rate/ Currency • Most countries have their own currencies (money) • In order to trade with each other a system of changing from one currency to another needs to be established. This system is known as the exchange rate. • For countries to trade they need to know what goods cost in each country. Gross Domestic Product (GDP) • GDP is the value of all goods and services produced by a country in a single year. • Wealthy countries have a much higher per capita GDP (amount of goods and services produced divided by the population) than developing or underdeveloped countries. Human Capital • Human Capitol-—Workers of a business or country including their education, training, skills, and health. • More skills and more education mean more productive workers • Companies that invest in training and education for employees typically have higher profits Capital Goods • Factories, machines, and technology are needed to make goods and important to economic growth. • Advanced technology and organization helps increase production and makes production more efficient.