In this chapter, you will learn to solve these economic puzzles: How does Babe Ruth’s decision not to become a pitcher illustrate an important principle in international trade? Is there a valid argument for trade protectionism? Should the United States return to the gold standard? | Chapter 28 International Trade and Finance ©2000 South-Western College Publishing Key Concepts Summary Practice Quiz Internet Exercises * In this chapter, you will learn to solve these economic puzzles: Should the United States return to the gold standard? Is there a valid argument for trade protectionism? How does Babe Ruth’s decision not to become a pitcher illustrate an important principle in international trade? * Why do countries trade? International trade allows a country to consume a combination of goods and services that exceeds its production possibilities curve * * 80 60 40 20 100 70 0 20 30 40 50 10 B´ (with trade) B (without trade) . A C PPC Steel (tons per day) . Production and Consumption Grain (tons per year) * 80 60 40 20 100 30 0 20 30 40 50 10 Japan F D E´ (with trade) PPC E (without trade) Steel (tons per day) Japanese Production and Consumption Grain (tons per year) * Why should countries Specialize and Trade? Total world output increases, and therefore, the potential for greater total world consumption also increases * If countries should Specialize, in what should they Specialize? They should produce those goods and services in which they have a comparative advantage * What is Comparative Advantage? The ability of a country to produce a good at a lower opportunity cost than another country * What is Absolute Advantage? The ability of a country to produce a good using fewer resources than another country * What is Free Trade? The flow of goods between countries without restrictions or special taxes * What is Protectionism? The government’s use of embargoes, tariffs, quotas, and other restrictions to protect domestic producers from foreign competition * What is an Embargo? A law that bars trade with another country * What is a Tariff? A tax on an import * What is a Quota? A limit on the quantity of a good that may be imported in a given time period * What are the Arguments for . | Chapter 28 International Trade and Finance ©2000 South-Western College Publishing Key Concepts Summary Practice Quiz Internet Exercises * In this chapter, you will learn to solve these economic puzzles: Should the United States return to the gold standard? Is there a valid argument for trade protectionism? How does Babe Ruth’s decision not to become a pitcher illustrate an important principle in international trade? * Why do countries trade? International trade allows a country to consume a combination of goods and services that exceeds its production possibilities curve * * 80 60 40 20 100 70 0 20 30 40 50 10 B´ (with trade) B (without trade) . A C PPC Steel (tons per day) . Production and Consumption Grain (tons per year) * 80 60 40 20 100 30 0 20 30 40 50 10 Japan F D E´ (with trade) PPC E (without trade) Steel (tons per day) Japanese Production and Consumption Grain (tons per year) * Why should countries Specialize and Trade? Total world output .
