WHY DO NATIONS TRADE? THE MOVEMENT OF GOODS AND SERVICES AROUND THE GLOBE

1. WHY DO NATIONS TRADE?THE MOVEMENT OF GOODS AND SERVICES AROUND THE GLOBE

2. WHAT IS INTERNATIONAL TRADE? • International Trade is the exchange of goods and services between nations across international borders. • It occurs when one nation has something that another nation wants. • Trade only occurs if the two nations feel they will be better off after the trade than they were before.

3. WHY DO NATIONS TRADE? • Nations trade when the benefit of the exchange is greater than the cost. • Nations produce the goods and services they do best and trade for things they do not make well. • Why make something in your own country when you can get it cheaper from another country?

4. COMPARATIVE ADVANTAGE • Comparative advantage refers to an economy's ability to produce goods and services at a lower opportunity cost than that of trade partners. • Both the U.S. and Bangladesh can produce a shirt, but Bangladesh can accomplish the task with much lower production costs than the U.S. (wages). • It doesn’t make sense for the U.S. to produce shirts and should trade with Bangladesh for them.

5. It's nice of Superman to rescue a kitten, but has he considered the opportunity cost of doing so? • The concept of comparative advantage suggests that Superman should focus on tasks that others can't do well, like stopping runaway trains or transporting nuclear weapons into deep space so they can detonate safely.

6. WHAT DO NATIONS TRADE? • Nations trade goods and services • Goods are physical items of value such as cars, oil, clothing and agriculture • Services are intangible products of value such as education, insurance, tourism, banking, accounting, and expertise.

7. WHAT IS AN IMPORT AND EXPORT? • An import is a product your home country acquires from another country. • An export is a product produced in your home country and sold to consumers in other nations.

8. ARE YOU AFFECTED BY TRADE? • In the 19th Century, a settler on the Great Plains had to make his own shelter and clothes, grow his own food, find his own water and energy, provide his own medical care and education for the children, defend himself, and produce everything else for survival. • Every moment of one’s life was consumed by pursuing the basics and little time was left for enjoyment. • Life was extremely difficult and many families didn’t survive.

9. ARE YOU AFFECTED BY TRADE? • Today, we specialize in a line of work that we’re good at and get paid for our effort. • The income allows us to trade for the things we don’t do well like growing food, making clothes, and providing health care. • Because we specialize and trade, we have a much higher standard of living and have ample time for enjoyment and recreation.

10. WHAT WOULD HAPPEN IF NATIONS DID NOT TRADE? • We would have to pay more money for items we want. • There would be many items we couldn’t acquire because we would run out of or lack the resources to produce them. • Many of us would have to work at jobs we’re not suited for just to make sure there are enough necessities for all.