Global Economics

By Ms. Lane

Why have you traded things you owned?

• Think about why you have traded clothes, lunches, toys, jewelry, hats, CDs, baseball cards, etc. with friends and/or relatives over the years.

• Why have you made trades?

I can describe the effects of international trade on people and nations.

Why do nations trade with each other?

• Nations trade because:– One nation cannot produce everything that the people want– Trading makes the standard of living better for the people– Trading helps nations specialize and use resources efficiently

• This is an economic issue as it relates to resource availability – Each country has different amounts of resources available– Resources are called factors of production– The factors of production that are most important for analyzing global economics are:

• Land (natural resources)• Labor• Human capital• Physical capital

• Compare the USA and your two assigned countries to determine:– What they should specialize in based on their factors of production– How they may use resources efficiently

I can describe the effects of international trade on people and nations.

Using resources efficiently

• Use the CIA World Factbook to collect data about the two countries that have been assigned to you.

• Read pages 441-443 to help you compare and rank the countries.

• What should each country specialize in?• Specialization-the concentration of productive efforts of

individuals and firms on a limited number of activities– Making a few goods well (specializing) is important because:

• Resources are used efficiently• Trading goods help countries get goods they want

I can compare the similarities and differences between economic systems.

Countries have advantages

• Absolute advantage-the ability to produce more of a given product using a given amount of resources– Examples of Absolute Advantage

• USA: corn, wheat• Costa Rica: coffee• Venezuela: oil

• Give an example of an absolute advantage you have over others.

• Why does absolute advantage exist?

Comparative Advantage• A comparative advantage is the ability to produce a product most

efficiently given all the other products that could be produced. • Give an example of a comparative advantage you have over a

friend or relative.– Example of Comparative AdvantageFor every computer China produces, they cannot make 5 smart phones.

Sweden cannot make 3 smart phones for every computer they manufacture. Which country should produce computers rather than smart phones? Why?

I can illustrate comparative advantage and its affect on trade.

Comparative Advantage Practice

• For every microwave oven Korea produces, they cannot make 4 coffee makers. Japan cannot make 2 coffee makers for every microwave oven they manufacture. Which country should produce microwave ovens rather than coffee makers? Why?

• What should each country specialize in?

I can illustrate comparative advantage and its affect on trade.

or ?

Comparative Advantage: Korea versus Japan

Available Resource UsageProducing Microwave Ovens or Coffee Makers

Country Name

Global Trade Issues: Why are so many goods made in China?

• Watch the video:The dark side of shiny Apple products• http

://www.cbsnews.com/8301-3445_162-57367950/the-dark-side-of-shiny-apple-products/

• Analyze the positive & negative effects of trade with China• Why are so many goods made in China?• What can we do to make the situation better?

I can evaluate the costs and benefits of the different economic systems.

Global Trade Issues: Destruction of the Environment

• http://www.youtube.com/watch?v=hzz6TWNRUAc

• http://www.rainforestinfo.org.au/background/causes.htm

• What are the costs of making goods overseas?• What are the benefits of making goods

overseas?• How do property rights effect the destruction of

the environment?I can evaluate the costs and benefits of the different economic systems. I can relate economic connections and differing costs of production to trading patterns.

Global Trade Issues: Copyrights & Patents

• Watch & Analyze: – Protected Content: Copyright and fair use videoThe US government has provided protection for inventors by granting:

Copyrights-protection from the US government that grants a creative person the exclusive right to publish and sell creative works.

Trademarks-a distinctive symbol, word, name or device that only the owner may usePatents-protection for an inventor that allows this person to gain all income from the

invention for 20 years.

– What are the differences between these protections?– Why does the US government provide these protections to inventors?– Copyright counterfeiters video

• How did the business in the video break the law?• Which protection was violated?• How does this violation hurt New Balance?

I can describe how private property rights conserve scarce resources and provide incentives.

Section Review

• Go to Quizlet: http://quizlet.com/_cu1wu – Complete Learn, Scatter, Test until you have

earned an “A”• Go to Studyisland.com and take the quiz:

Global Economics• Complete AFL numbers: 1b, 2b,3b, 4b, 6b

International Trade

Trading with the world

• There are two key trading terms:– Imports

• A good that is brought in from another country for sale• Why?

– Exports• A good that is sent to another country for sale• Why?

• Analyze International Trade– Use the CIA World Factbook to collect data about

international trade and the two countries that were assigned to you. Use the information to analyze global trade patterns.

I can explain how the concepts of balance of trade and balance of payments are used to measure international trade.

Analyzing Trade

• Free trade means governments do not make laws to control trading between nations

• Many countries make laws to control trade. Why?

• To protect _____ and __________ in their own country

I can analyze the effects of free trade, trade agreements and protectionism.

Trade control vocabulary

Trade barrier-a means of preventing a foreign product or service from freely entering a nation’s territory– Import quota-limit on amount of a good that can be imported

• Sugar• Tobacco • Peanuts and peanut butter • Many specific dairy products (e.g. powdered milk, baby formula) • Beef

– Voluntary export restraint• A self-imposed limitation on the number of products shipped to a

particular country

– Tariff• A tax on imported goods I can analyze the effects of free trade, trade

agreements and protectionism.

Protecting Business

• Scenario: Make a list of car manufacturers. • How many of the manufacturers are

American?• Why would the US want to impose a tariff on

foreign cars– 3 reasons a tariff may help the economy– How could the tariff backfire and hurt the

economy?

I can analyze the effects of free trade, trade agreements and protectionism.

Measuring Trade• Trade between countries is complicated

because each country has a different currency or type of money

• Exchange Rate-the value of a foreign country’s currency in terms of the home country’s currency

• Exchange rate table to the right show the amount of foreign currency one can exchange a US dollar for on March 30, 2013. The rate changes every day.

• If the US dollar declines in value against the British Pound and Indian Rupee, the US dollar will buy fewer of each currency.

• An increase in the value of a currency is called appreciation.

• A decrease in the value of a currency is called depreciation.

I can predict how exchange rates affect international trade.

Calculating Rate of Exchange

• Scenario 1: Your family will vacation in Mexico this summer. How much will the hotel room cost? – Hotel room = 500 pesos– 10 pesos = $1 (Exchange rate)– 500 pesos/10 pesos per dollar = $50.00

• Scenario 2: Your family waits until September to go to Mexico. – The exchange rate has changed. It is now:11 pesos = $1 (Exchange rate)

What has happened to price of the hotel room?I can predict how exchange rates affect international trade.

Exchange Rate Problem

• You are travelling to Brazil for a vacation. You decide to buy a Brazilian soccer uniform as a gift for your cousin.

• The Brazilian currency is called Real.• The jersey costs 1500 Reals. • The exchange rate between American

dollars and Brazilian Reals is $1 (US) for R$30.

• How many dollars will the jersey cost?I can predict how exchange rates affect international trade.

The Balance of Trade

• Countries want to balance the amount of imports (goods brought in from another country for sale) with the amount of exports (goods sent to other countries for sale).

• If Imports > exports = currency value decreases

• Lower currency value leads to higher prices for imports…consumers then pay more for goods

I can explain how the concepts of balance of trade and balance of payments are used to measure international trade.

More Trade Vocabulary

• Trade surplus = Exports > Imports (for a country)• Trade deficit = Imports > Exports (for a country)• Balance of trade = relationship between a

nation’s imports and exports

Import Export

Comparing Trade by Country

• Complete the table for the countries you studied

• Which countries have a trade surplus?• Which countries have a trade deficit?• How can the trade situation help or hurt the

currency (money) of each country?

Unit review

• Go to Quizlet: http://quizlet.com/_cveaz – Complete Learn, Scatter, Test until you have

earned an “A”• Go to Studyisland.com and take the quiz:

International Trade• Complete AFL numbers: 5b, 7b,8b, 9b