Benefits of international trade

• Economie

Chapter 17

Section 1:Benefits and Issues of International Trade

Pages 510-519

Objectives

Determine why nations choose to specialize their economies.

Analyze the theory of comparative advantage

Compare absolute and comparative advantage 

Definition

Specialization is a situation that occurs when individuals or businesses produce a narrow range of products.​​

Economic interdependence is a situation in which producers in one nation depend on others to provide goods and services

they do not produce.​

Suppose that you and a friend are responsible for providing costumes  and making the set for a play. Your friend owns 

a sewing machine and is able to design clothes. You are handy with tools and have a workshop in your basement. 

 Should you divide the work for
both tasks equally or divide it so that your friend  does all the sewing and you build the set? Give reasons for their answers. Point
out that nations face similar decisions when they  consider trade with other nations.​

Answer the above questions.

Why should nations specialize in what they produce most efficiently and trade for the rest?

What is a situation that occurs when individuals or businesses
produce a narrow range of products?

1. Economic interdependence
2. Prosperity
3. Depresssion
4. Specialization

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What if, he
suggested, Portugal makes both products more efficiently than England? Would trade, at least for Portugal, no longer be beneficial?

Answer

 That trade would still be beneficial. He based his conclusion on the opportunity costs each nation spends to make its products. 

Does the law of comparative advantage apply only to nations, or does it apply to
individuals as well? Explain your answer.​

​Absolute advantage
is the ability of one trading  nation to make a product more efficiently than
another trading nation.​​

Comparative  advantage is a trading  nation’s ability to produce  something at a lower  opportunity cost than that  of another trading nation.​

​The law of comparative advantage states  that countries gain when  

they produce items they are most efficient at producing and are at the lowest  opportunity cost.​

What is the idea that a nation will specialize in
what it can produce at a lower opportunity cost than any other nation?

Compare the difference between absolute advantage and comparative advantage.Use examples to prove your answer

What are the important points of the lesson?