INTERNATIONAL ECONOMICS UNIT 4. SPECIALIZATION & VOLUNTARY EXCHANGE Most countries don’t produce...
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![Page 1: INTERNATIONAL ECONOMICS UNIT 4. SPECIALIZATION & VOLUNTARY EXCHANGE Most countries don’t produce everything they have and need because they have specialized.](https://reader036.fdocuments.us/reader036/viewer/2022072017/56649f0c5503460f94c20039/html5/thumbnails/1.jpg)
INTE
RNATIO
NAL
ECONOMICS
UN
I T 4
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SPECIALIZATION & VOLUNTARY EXCHANGE
• Most countries don’t produce everything they have and need because they have specialized.
• Specialization: where countries produce a narrower range of goods.• It increases productivity•Creates interdependence (where countries agree to rely on others due to specialization).• Trade creates incentive to be cooperative and have peace
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COMPARATIVE & ABSOLUTE ADVANTAGE
Absolute Advantage: ability to produce MORE units than another producer
Country A can make more units But country B still tries to contribute Does NOT involve specialization
Comparative: ability to produce a good at a lower opportunity cost than another producer
Whomever has the least opportunity cost, should make that item Because they are able to produce it more efficiently than another
country
http://www.cleanvideosearch.com/media/action/yt/watch?videoId=38hvvAzgXZY
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TRADE & PAYMENTS
• Balance of Trade: Only measures imports and exports of GOODS Only measures tangible items
• Balance of Payments: measures goods AND SERVICES with other countries
• Trade Surplus: when exports exceed imports (favorable)
• Trade Deficit: when imports exceed exports
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RESTRICTIONS
• Tariffs: taxes on imports (can be raised on lowered by any country)• A result is higher prices on items though
• Quotas: Limits on quantity of products that can be imported/exported
• Embargo: putting conditions on trading with a country all together
1. http://www.cleanvideosearch.com/media/action/yt/watch?videoId=Y2X3KPilAt0
2. http://www.cleanvideosearch.com/media/action/yt/watch?videoId=_e2gQxN1OBg
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TRADE BLOCS• EU-European Union
• NAFTA-North Atlantic Free Trade Agreement (US/MEX/CAN
• WTO-World Trade Organization- settles disputes among trading nations
• Smoot-Hawley Tariff: the USA's main goal emerged to protect American jobs and farmers from foreign competition. HIGHEST TARIFF IN US HISTORY
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NAFTA
• North American Free Trade Agreement
• Creates free trade in North Atlantic countries (Canada, US, Mexico)
• Created more jobs and protected the region so they would work together
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FOREIGN EXCHANGE
• Is the buying and selling of the currencies of different nations
• This is the price of one country’s currency in relation to another’s
• Exchange rate: Amount of one country’s currency that is equal to one unit of another’s
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INTERNATIONAL AGENCIES
International Monetary Fund (IMF)
A. Helps all nations with making monetary policy decisions
B. Gives loans to developing countries
World Bank
A. Lends money , gives aid & gives advice to developing countries