Transcript PowerPoint – Voluntary Trade and Economic Growth

Voluntary Trade
1
SS6E2 The student will give examples of how voluntary
trade benefits buyers and sellers in Latin America and the
Caribbean and Canada.
a. Explain how specialization encourages trade between
countries.
b. Compare and contrast different types of trade
barriers, such as tariffs, quotas, and embargos.
c. Explain the functions of the North American Free Trade
Agreement (NAFTA).
d. Explain why international trade requires a system for
exchanging currencies between nations.
Economic Growth
2
SS6E3 The student will describe factors that influence
economic growth and examine their presence or absence
in Latin America and Canada.
a. Explain the relationship between investment in human
capital (education and training) and gross domestic
product (GDP).
b. Explain the relationship between investment in capital
(factories, machinery, and technology) and gross
domestic product (GDP).
c. Describe the role of natural resources in a country’s
economy.
d. Describe the role of entrepreneurship.
What is Voluntary Trade?
3
 Voluntary Trade is an
economic exchange in which
all sides agree to
participate because they
expect to benefit.
 When a person agrees to
trade a product or service
for money, or another
product or service, both
sides benefit from the
trade.
Specialization
4
 One reason that trade is so
important is that many countries
specialize in the creation of one
or more products.
 Specialization is when people,
businesses, or countries produce
specific goods or services in
order to produce more.
 Many countries specialize in the
creation of one product or
service, due to the resources they
have (human resources, natural
resources, etc.) available.
Wine vineyard in Alsace, France
Specialization Encourages Trade
5
 No country can truly be self-sufficient (able to produce
EVERYTHING they need), so countries rely on trade.
 Because of this, countries specialize in producing those goods
and services that they CAN provide most efficiently. Most of
that country’s human capital (training and education) and capital
goods (machines and factories) are put into that specialized
field.
 They then look for others who may need those goods and
services so they can sell their products to those who need them.
These countries would then participate in voluntary trade, which
would benefit both countries.
 Example – France and Italy invest heavily in the production
of textiles (a type of cloth or woven fabric).
Trade Barriers
6
 At times, governments of countries around the world may
decide to regulate (control) trade by passing different
rules/laws that impact trade. These can collectively be known
as trade barriers.
 Trade barriers are anything that slows down or prevent one
country from exchanging goods with another country.
 Examples of Trade Barriers:
 Tariff
 Quota
 Embargo
Trade Barriers
7
 Tariff: A tariff is a tax placed on goods when they are
brought (imported) into one country from another
country.
 Quota: A quota sets a specific amount or number of a
particular product that can be imported or acquired in
a given period
 Embargo: An embargo is when one country announces
that it will no longer trade with another country in order
to isolate a country and cause problems with that
country’s economy.
NAFTA
8
 NAFTA: The North American
Free Trade Agreement
 Agreement between the
United States, Canada, and
Mexico, creating a trilateral
trade bloc in North America.
Signed in 1993 and went into
effect on January 1st, 1994.
 Meant to create “free” trade
in North America (NO trade
barriers).
NAFTA – Pros
9
 Free trade increases sales and profits for Mexico, Canada
and the U.S.A., thus strengthening their economies.
 Lack of tariffs has allowed Mexico to sell its goods in the
USA and Canada at lower prices.
 This makes Mexican products more competitive in these
markets and increases Mexico’s profits as it tries to
develop its economy.
 Free trade is an opportunity for the U.S. to provide
financial help to Mexico by making jobs available in
factories located there.
NAFTA – Cons
10
 Free trade has caused more U.S. job losses than gains, especially for
higher-wage jobs.
 People work for lower wages and there are fewer labor regulations in
Mexico, so American factories have moved across the border.
 Factories, called Maquiladoras, are built on the Mexican border and
workers are hired there to make goods at a much lower wage than
workers would be paid in the U.S.A.
 Mexico does not have as strict environmental regulations like Canada &
U.S., so when factories move across the border, they are contributing to
North America’s pollution problem.
 Some argue that our borders should be open like the European Union. That
makes some people angry because they feel the borders should be closed.
Currency
11
 Money that is used as a way to
trade goods and services.
 Examples:
 Paper Bills
 Coins
 Different countries around the
world have their own form of
currency.
 This can make trade difficult (since
you don’t know how much your
money is worth compared to other
country’s money), unless there is a
system for exchanging currencies.
Currency Exchange
12
 Without a system for currency exchange
international trade would be very difficult.
 The Foreign Exchange Market, made up of
large banks around the world, determines the
exchange rates for different currencies.
 This allows a country to know the value of
their money, compared to another currency.
 Example:
 1 U.S. Dollar = 1.32 Canadian Dollar
 Many currencies, particularly in electronic
exchanges, are converted to the U.S. Dollar
when engaging in international trade. Many
businesses have found doing trade in one
currency (the U.S. Dollar) makes international
trade easier.
U.S. Dollar
Canadian Dollar
Factors of Economic Growth
13
 Economic growth is the increase in the market value
of the goods and services produced by an economy
over time.
 There are many factors that can contribute to the
economic growth of an area. The main four factors
that influence economic growth are:
 Labor
 Capital
 Land
 Entrepreneurship
Labor and Human Capital
14
 The workforce of an
area or country is usually
referred to as labor.
 An investment in human
capital (education and
training) can allow the
workforce to be better
trained and/or more
skilled as workers.
Human Capital and GDP
15
 Workers that are better trained may have access to more advanced
technologies (factories, etc.), safer work environments, and better methods
for completing their work, allowing them to produce products or perform
services more efficiently. By producing more products and performing more
services a country is able to increase their Gross Domestic Product (GDP).
 GDP is an estimate of the total market value of all final goods and services
produced in the borders of ONE country in ONE year. Translation: estimate
of the value of all the stuff a country makes in a year.
Worker have
education/training
are healthy
and have safe
working conditions
Workers are able to
produce a higher
quantity and
higher quality
goods and services
More products are
made and
International
trade increases
GDP goes up
Literacy Rate
16




One measure of human capital
is the literacy rate of a
country’s citizens.
Literacy rate is the percentage
of people who can read and
write in a country.
This statistic can be used to
determine the level of
education of people living in a
country and is usually tied to
the country’s GDP.
Countries that invest more in the
education of their citizens (more
schools, training, etc.) normally
have higher literacy rates and
a higher GDP.
Effect of Literacy on Economics
17


Real Economic Growth is the rate that a country’s economy is growing. The growth rate
is usually lower for economies that are already really large.
Literacy Rate and Economic Growth for Latin America and Canada:
 Canada

Literacy Rate: 99%

Real Economic Growth Rate: -0.3%

GDP: $1.674 trillion

GDP Per Capita: $46,200
 Cuba

Literacy Rate: 99.8%

Real Economic Growth Rate: 1.3%

GDP: $128.5 billion

GDP Per Capita: $11,600
 Brazil

Literacy Rate: 90.4%

Real Economic Growth Rate: -3.3%

GDP: $3.135 trillion

GDP Per Capita: $15,200
Capital Goods (Resources)
18
 Goods such as factories, machines, and
tools that workers use to make other goods.
Effect of Capital Goods on Economics
19
 Countries can also increase their economy by investing in capital goods.
 By investing in capital goods (creating new technologies, building new
factories, machines, tools, etc.) countries are also able to increase their
GDP.
 For each country below, the investment in capital is shown as a percentage
of the country’s GDP.
 Canada
 Capital Investment: 22.2%
 Real Economic Growth Rate: -0.3%
 Cuba
 Capital Investment: 1.3%
 Real Economic Growth Rate: 6.8%
 Brazil
 Capital Investment: 15.8%
 Real Economic Growth Rate: -3.3%
Natural Resources
20
 Natural resources
are the raw
materials used to
support life and
make goods.
 Examples:
 Trees
 Land
 Oil
Canada’s Natural Resources
21
 Oil is one of the major natural resources found in Canada. Canada
has the 3rd largest proven oil reserves in the world (behind Saudi
Arabia and Venezuela) and is the 5th largest oil exporter.
 Access to proven oil reserves can have a major impact on a
country’s GDP.
 Other Canadian Natural Resources:
 Minerals (iron, silver, copper, nickel, gold)
 Rare earth elements
 Wildlife (fish)
 Coal
 Hydropower
 Forest products (timber)
 Agriculture (wheat, barley, oilseed, tobacco, fruits,
vegetables, dairy products)
Entrepreneurship
22
 Entrepreneurs are people who have an idea for a business, are
willing to take a risk, and combine human, natural, and capital
resources to produce a new good or service.
 Entrepreneurs are only able to succeed in a more market system
(closer to market than command on the economic continuum),
where they have the freedom to control their own economic
decisions.
Entrepreneurship in Canada
23
 Countries typically encourage or discourage entrepreneurship
differently, depending on where they fall on the economic
continuum.
 Canada encourages entrepreneurs! For example:
 In Canada, the overall freedom to start, operate, and close a
business is strongly protected under Canada's regulatory
environment.
 Starting a business takes an average of five days, compared
to the world average of 38 days.
 Obtaining a business license requires less than the world
average of 18 procedures and 225 days.
 Canada’s rating for Business Freedom = 81.9; the world
average = 64.8 (2017).