Transcript File

Specialization and Trade
Barriers
Specialization
“Do what you do best; trade for the rest!”
•
Attempting to produce everything
you want to consume yourself
limits both your production and
consumption possibilities.
•
To specialize, you must figure out
what you “do best.” Economists
define “best” as that which you
produce at the lowest opportunity
cost.
•
“Trading for the rest” by “selling”
the goods or services you can
produce at low opportunity costs
and then “buying” things you
would produce at a high
opportunity cost requires division
of labor.
What are the potential problems
of over-specialization such as
one-crop economies and lack
of diversification?
How can this impact a region’s
economy?
Currency Exchange
• Before people from different countries can
buy or sell anything to each other, they have
to be able to change their money from their
country's currency to the seller's national
currency.
– This is called "foreign exchange."
• Each currency, whether it's the US dollar or
the Haitian gourde, has a value in terms of
other currencies. This is the "exchange
rate."
• Without a reliable supply of foreign
exchange in each country, and without
relatively stable exchange rates, world trade
would drop drastically.
• You wouldn't be wearing tennis shoes made
in Asia, or eating an apple grown in New
Zealand.
The Iraqi Dinar
The Saudi
Riyal
Israeli Lira
Iranian (Persian) Rial
Exchange rates
• Exchange rates provide a
procedure for determining
the value of one country’s
currency in terms of
another country’s
currency.
• Without a system for
exchanging currencies, it
would be very difficult to
conduct international
trade.
Barriers to Trade
• A tariff is a tax placed on
goods that one nation imports
from another.
• Many nations use tariffs to
protect their industries from
foreign competition.
• Tariffs provide protection by
acting to raise the price of
imported goods.
• Thus, tariffs encourage
domestic firms to increase their
production, and consumers are
forced to pay higher prices for
the protected goods.
Import quotas
• Import quotas offer another
means of protectionism.
• These quotas set a limit on the
amount of certain goods that
can be imported into a country
and tend to be more effective
than protective tariffs, which do
not always stop consumers
who are willing to pay a higher
price for an imported good.
• OPEC Monitors oil supply and
demand to set the price of oil.
How? By QUOTAS!!
Embargo
• An embargo is an order
designed to stop the
movement of goods.
•
An embargo, issued by the
government of one country, may
restrict or suspend trade between
that country and another nation.
•
A government may impose an
embargo to hamper the military
efforts of another government.
•
Sometimes a government
imposes an embargo to express
its disapproval of actions taken by
another government. The
embargo is intended to pressure
the offending government to
change its actions.
Why did the US
place an embargo
on Iraq after the
Persian Gulf War?
Word Association
• Embargo = stop or halt
• Quota = limit
• Tariff = Tax
How could a high tariff on imported
grain help the people in the country
charging the tariff?
1) The grain process would be lower if tariffs
were in place
2) Local grain would always be of a higher
quality than grain from other countries
3) Local grain would be more plentiful because it
was grown closer to the markets
4) Local farmers would be able to sell their grain
since it would be cheaper than imported grain
How could a high tariff on imported
grain help the people in the country
charging the tariff?
1) The grain process would be lower if tariffs
were in place
2) Local grain would always be of a higher
quality than grain from other countries
3) Local grain would be more plentiful because it
was grown closer to the markets
4) Local farmers would be able to sell their
grain since it would be cheaper than
imported grain