Economics Chapter 18

Economics Chapter 18

Trading with other Nations Trade and specialization lead to economic growth for individuals, regions, and nations Benefits of Trade Imports Exports Differing factors of production

Absolute Advantage- Ability to produce more output than another country. Specialization Ability of a country to produce a product at a

lower opportunity cost than another country. Fixed Exchange Rates- Pay in that countries currency Foreign Exchange markets- conversion of currency 1945-1970 IMF supported fixed rates of exchange. Devaluation to promote exports

Today a more flexible system Supply and demand set exchange rates on a daily basis Depreciation- fall in the price of a currency Balance of Trade- difference between imports and exports

Three ways to Restrict Imports Tariffs- Tax on imports Revenue tariff- just to raise money Protective tariff- tax to decrease imports and protect domestic producers Quotas- Set an amount that can be brought in Embargoes- Restriction for a particular country

(Cuba) Protectionists- want to protect domestic goods The World Trade Organization- 147 Nations, Worlds largest trade agreement Regional Trade Agreements NAFTA The Central American Free Trade Agreement

(CAFTA) European Union- 25 European countries, larger than the U.S.

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