International Trade

Chapter 17

Absolute and Comparative Advantage

Resource Distribution and Specialization Natural Resources Capital and Labor Unequal Resource Distribution Specialization and Trade▪ Export – good or service sent to another

country▪ Import – good or service brought in from

another country

Absolute and Comparative Advantage

Absolute Advantage The ability to produce more of a given

product using a given amount of resources

Comparative Advantage The ability to produce a product most

efficiently given all the other products that could be produced

Absolute and Comparative Advantage

-Importance of Opportunity Cost

- Mutual Benefits

Trade Barriers and Agreements

Trade Barriers Trade restriction▪ Tariff – tax on imported goods▪ Quotas and VERS – cap on amount that can

be imported/ voluntary export restraint ▪ Licenses, Regulations, Sanctions, Embargos

Trade Barriers and Agreements

Effects of Trade Barriers Increased Prices for Foreign Goods Trade Wars

Arguments for Protectionism Protecting Jobs Protecting Infant Industries Safeguarding National Security

Trade Barriers and Agreements

Trade Agreements World Trade Organization (WTO) The European Union (EU) NAFTA DR-CAFTA and FTAA