International Trade Definitions and

ConceptsIntro. to World Agricultural Science

and TechnologyFall 2002

Ms. Bailes

What on Earth Does This Mean?

U.S. trade with Mexico and Canada is up as a result of NAFTA.

Agriculture accounts for 7% of Malaysia’s GDP. Per capita consumption of rice in Indonesia is

1,600 pounds per year. Exports to China were down in 1999 due to

lasting impacts of the Asian economic crisis. France has declared a ban on imports of beef

products from Argentina due to recent FMD outbreaks.

Today’s Objectives

Define terms important in discussing international tradeDifferentiate between exports and importsExplain the difference between comparative advantage and absolute advantageIdentify potential gains from international trade of agricultural products

Terms to Know

Trade - an exchange of products

Export - a good transported away from the area

Import - a good transported into the area

Domestic - relating to one’s own country

Terms to Know, cont.

Commodity - an economic good produced by agricultural or mining industries

GDP - Gross Domestic Product - total value of a nation’s annual output of goods and services

Per capita - per person

Terms to Know, cont.

Comparative Advantage -a nation will specialize in the production and export of goods that they can produce cheaper than other countries due to their favorable conditions

Comparative Advantage

Austria and Hungary both produce sugar beets and potatoes.

Austria can produce sugar beets for $0.50 / lb. and potatoes for $0.30 / lb.

Hungary can produce sugar beets for $0.45 / lb. and potatoes for $0.15 / lb.

What will Hungary decide to specialize in?

What will Austria specialize in?

Comparative Advantage

Hungary will specialize in potatoes.Austria will be able to specialize in sugar beets.Austria will import potatoes from Hungary for $0.25 / lb.Hungary will import sugar beets from Austria for $0.35 / lb. Everyone will benefit.

Terms to Know, cont.

Absolute Advantage - a nation will export goods certain goods because it can produce it cheaper than all other nations or other nations are unable to produce it

Potential Gains from Agricultural Trade

Specialization in Goods of Efficient Production

Gain from Exchange of Goods

High Quality Goods

Diversity of Selection

Higher Export Prices

Lower Import Prices

Increases Standard of Living