SS6E2 The student will give examples of how voluntary trade benefits buyers and sellers in Latin America and the Caribbean and Canada.
What is Specialization? Specialization occurs when one nation can produce a good or service at a lower opportunity cost than another nation. An expert in the work done.
Explain how specialization encourages trade between countries. With trade, the volume of a country’s production of a good can be substantially higher than what its internal (domestic) market can use, increasing the opportunity for that country to make money. A larger market means that goods can be produced more cheaply too. Free trade gives countries the incentive to produce goods that will make money on the world market. This may encourage competition and innovation, to the ultimate benefit of all.
When a country has more of one product than they could use, they will sell the excess amount to another country in exchange for something they need. Oil Cars Clothing Food
Compare and contrast different types of trade barriers, such as tariffs, quotas, and embargos. Import Export Embargo A Ban Quota A Limit Tariff A Tax
Tariffs A tariff is a tax placed on goods when they cross a political boundary. Tariffs are usually imposed on imported goods, but they may also be placed on exported goods. Tariffs may be of various kinds: An ad valorem tariff is a set percentage of the value of the good that is being imported. Sometimes these are problematic as when the international price of a good falls, so does the tariff, and domestic industries become more vulnerable to competition. A specific tariff is a tariff of a specific amount of money that does not vary with the price of the good. A "revenue tariff" is a set of rates designed primarily to raise money for the government. Example: A tariff on sugar imports, for example (imposed by countries where sugar cannot be grown) raises a steady flow of revenue. A "protective tariff" is intended to artificially inflate prices of imports and "protect" domestic industries from foreign competition. A "prohibitive tariff" is one so high that no one imports any of that item.
Quotas A quota is a limit on the quantity of goods that can be imported into a country. Import quotas are a form of protectionism. An import quota fixes the quantity of a particular good that foreign producers may bring into a country over a specific period, usually a year. The U.S. government imposes quotas to protect domestic industries from foreign competition. Import quotas are usually justified as a means of protecting workers who otherwise might be laid off. They also can raise prices for the consumer by reducing the amount of cheaper, foreign-made goods imported and thus reducing competition for domestic industries of the same goods.
Embargos Government prohibition of exports or imports with respect to specific products or specific foreign countries. Usually imposed during times of war. The US had an embargo in place against Cuba. US companies were not allowed to trade with Cuba. US citizens were prohibited from traveling to Cuba (except under special circumstances). Congress passed a bill that made the embargo even stronger by imposing sanctions against any country that traded with Cuba.
NAFTA Explain the functions of the North American Free Trade Agreement (NAFTA). NAFTA is the North American Free Trade Agreement between the U .S., Canada and Mexico. It became effective on January 1, 1994.
The purpose of NAFTA was to encourage trade by eliminating tariffs on most goods originating in and traded between the U.S., Mexico and Canada over a fifteen-year period. Benefits of NAFTA include: Elimination of tariffs, lower prices, and increased profit margins. Increased trade results in an increase in sales of U.S. goods. Increased manufacturing output and wages.
Explain why international trade requires a system for exchanging currencies between nations. The Yen The Dollar The Euro
Review Questions Which term best describes an economic system in which the people-not the government-own land, factories and businesses? • Communism • Market • Command • Tradition In which economic system does a single authority decide what is produced? • Traditional • Command • Market • Public
Review Questions Cont. In a traditional economic system people usually exchange goods or services rather than use money. Which of the following is an example of this exchange process? • Charging goods on a credit card • Bartering with a seller • Paying for services by check • Using currency to pay A market economy is very different from a command economy. Which of the following is found in a market economy? • Competition • Guaranteed yearly pay raises • Government control of industry • Government control of agriculture
Review Questions Cont. The economic system of communist countries is most closely related to which of the following? • command • market • Traditional • Supply and demand Which trade barrier discourages trade by placing a tax on foreign goods? • Embargo • Quota • Subsidy • Tariff
Review Questions Cont. Which word has the same meaning as the economic term “tariff”? • Tax • savings • debt • Money A country’s parliament votes to increase tariffs upon goods from another country. This is an example of • A monarchy encouraging free trade. • representative democracy restricting trade • A socialist congress preventing free enterprise. • A communist government allowing freedom of speech.
Created by: Debra Harrington The End
References • http://www.wisegeek.com/what-is-a-tariff.htm • http://fedex.com/us/customersupport/ftn/faq/advisory.html#topthree13 • http://www.wave.net/upg/immigration/flags.html#C • http://www.sharafcargo.co.za/index.php?option=com_content&task=view&id=24&Itemid=40 • http://leler.com/cuba/embargo.html • http://www.eoearth.org/article/Free_trade • http://www.answers.com/topic/import-quota • http://www.fas.usda.gov/itp/Policy/nafta/nafta.asp • http://www.buyusa.gov/globaldiversity/nafta.html