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Unit 4: International Trade

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michelle ashmore

on 14 March 2017

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Transcript of Unit 4: International Trade

Unit 4: International Trade
Why do we trade?
Principles
of
Economic Systems
Internationalism
v.
Protectionism
So, is the US dollar
STRONG or is it WEAK (compared to other nations)??
Who Do We Trade with?
Blocs / Agreements
nations who create an arrangement on how they will decrease trade restrictions between them
NAFTA
(North American Free Trade Agreement)
arrangement between the US, Canada, and Mexico to reduce barriers in trade
EU
(European Union)
28 European nations that share a currency and minimal barriers to trade
ASEAN
(Association of Southeast Asian Nations)
10 SE Asian nations agree to decrease barriers
Import Quota
limit on the # of goods that can be imported
embargo
ban on all goods from a nation
Tariff
tax on imported goods
Standard
a minimum quality that a product must have to be imported
BARRIERS
the restrictions placed on trade with other nations.

some are self-imposed while others are forced by the exporting nation.
BLOCS
BARRIERS
Is Trading a good idea?
International Currency...
how is the US doing?
freedom
choice of job, what to buy, what to sell, etc.
competition
make the best goods
voluntary exchange
producers and consumers choose who we want to exchange/trade/barter with
self-interest
do what is best for you
private
property
we can own the factors of production
profit motive
the goal is to make money!
CARICOM

MERCOSUR
*self inflicted
allows domestic producers to have advantage!
* self inflicted
Absolute v Comparative Advantage
trade allows for an increased variety of goods available
EXPORT = what is sold to other nations




IMPORT = what is bought from other nations
balance of trade = when a nation imports as much as it exports

trade surplus= more # exports than # imports

trade deficit = more # imports than # exports


Absolute advantage:

the ability of a nation to make more of a product than another nation.
Comparative advantage:

the ability of a nation to produce a good at a lower opportunity cost than another nation
which nation has
Absolute advantage
in cars?
in trucks?

country B
country B
Which country has comparative advantage
in cars?
in trucks?

will they trade?
country A
and country B
neither
no. they have comparative advantage in the same thing (cars) so they will both focus on making cars
Internationalist
likes trade (agreements)
improves efficiency
consumers have variety
lowest possible prices
increase trade agreements (NAFTA, ASEAN, EU)
Protectionist
increase barriers, restrict trade
Gov't should protect national security. can't rely on other nations for vital goods (oil, military)

help our infant companies from foreign competition

put trade barriers in place

balance of trade and payments
First we need to look at our money in common terms to see how much trade will cost.
exchange rate: our nations currency in terms of another nations currency.
look for the part of the table that =1USD
formula:

FOREIGN TO USD = problem / chart

USD TO FOREIGN = problem x chart
when you get home from a trip... you DIVIDE your laundry
when you go on a trip you multiply your bags with soveniers
1) 50 USD in Euros

2) 100 Australian dollars in USD

3) Adams decides to go to Great Britain this summer because she loves English tea. She brings $50 to buy souvenirs. How much will she have in pounds?

4) When Joe gets home from Iceland with 25 krona, how much will he have to buy dinner at McDonald's?
Strong $ - our currency is MORE valuable than other nations




Weak $ - our currency is LESS valuable than other nations
some benefit from STRONG $
(appreciation: gain value)
When the US $ is strong:
import more (cheaper to buy stuff)
travel abroad more
export less ( our stuff is more expensive)
US companies operate overseas (outsourcing)

* buy more, sell less (deficit)
Some benefit from a weak $
depreciation: lose value
When the US $ is weak...
import less (their stuff is expensive)
travel abroad less (stay within US)
export more (our stuff is cheaper)
foreign companies come to US to produce

*buy less, sell more (surplus)
http://www.investopedia.com/video/play/basic-concept-absolute-advantage/
balance of payments

the difference in total value between payments into and out of a country over a period.
($ Exports-$ imports)
TRADE too much?
*remember in GDP (X-M)...
the only consistently negative component of the US GDP is net exports. This means we have a trade deficit!!!
Products Under US Import Quotas:
Sugar
products with more than 65% sugar content
Tobaccco
Peanuts and peanut butter
Many specific dairy products (e.g. powdered milk, baby formula)
Cotton
Beef
Animal feed
Anchovies
Wire rod
Ethyl alcohol
Olives
Mandarin oranges
Tuna
Brooms
flexible exchange rate:
changes based on supply and demand of a currency in relation to other currencies.

ex: If there is a high demand for US currency, its exchange rate relative to other currencies increases, on the other hand, if there is less demand, its value decreases.

fixed exchange rate:
value is fixed against another currency or another measure of value, such as gold.
Csonda can grow more turnips than Queoldiola.
Csonda can make more sundials than Queoldiola.
Each nation has to decide what it should spend its time producing...
what would be a wiser use of resources?
Subsidies
government help
or assistance
Why is free
trade good?
We don't have to make every good (scarcity of resources)

Variety of products

specialization and efficiency

increases competition, lowers prices

increased quality

increased employment
Why free trade is bad
hurts small companies due to over competition

imports can be cheaper

GDP is negative (import > export)
Costs and Benefits of Trade barriers
Costs of trade barriers
For consumers:
For producers:
increased prices

less variety


less consumers abroad

less resources available


Benefits of Trade barriers
For consumers: For producers:

standards/quality
of goods are
consistent
less competition

more control over prices
foreign currency in USD USD in foreign currency
Australian Dollar 1.2867 0.77170
European Euro 0.9068 1.1026
British Pound 0.6563 1.5235
Icelandic Krona 135.1097 0.0074
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