IN T ER N AT IO N A L T RA DE .
I n t r odu ct ion
Chapter 11
THE EXCHANGE
OF GOODS &
SERVICES
BETWEEN
COUNTRIES.
STATISTICS
Exports as Percent of GDP:
29.29% of GDP (2018)
Imports of goods and services as
percentage of GDP is 55% of GDP
(2018)
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+ JOBS + CONSUMPTION
+ THE FIGHT AGAINST
POVERTY
+ ENVIRONMENTAL ISSUES
+ NATURAL RESOURCES
+ FASHION
Some terms…
EXPORTS – goods or merchandise that are sold to other
countries in order to earn dollars
IMPORTS – goods or merchandise bought
from foreign countries
Some terms…
TRADE DEFICIT – occurs when a value of a
nation’s export is less than the value of its
imports
Exports < Imports
TRADE SURPLUS – occurs when a value of
nation’s export is greater than the value of its
Imports
Exports > Imports
• Some of the goods and services we
are provided of come from outside
the country.
• Create jobs
• International trade also motivates
workers to produce
the goods or
services better
• Supply and demand affects global
events
*EXAMPLES:
- Oil
- Political conditions
“Globalization is the integration of
economies and cultures through a
global network of political ideas
through communication,
transportation and
trade.”
deals with the exchange
and distribution of
goods and services made
for local consumption
includes the marketing of
different goods and services
to various parts of the country
FACTOR DOMESTIC INTERNATIONAL
TRADE TRADE
1. Mobility in Free to move Quite restricted
factors of from one state
production to another
(land, labor, within the
capital and same country
entrepreneur)
FACTOR DOMESTIC INTERNATIONAL
TRADE TRADE
2. Movement Easier to move Restricted
of goods goods without due to
much complicated
restrictions custom
procedures and
trade buyers like
tariffs, quotas, or
embargo
FACTOR DOMESTIC INTERNATIONAL
TRADE TRADE
3. Currency Same Different
4. Markets Limited market Broader markets
due to limit in
population
5. Language and Speaks and Communication
Culture Barriers practice same challenges due to
culture language and
cultural barriers
separation of tasks within a system
(definition)
means a nation produces a certain product
with cheaper cost
excess production can be used to export to
other countries
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This theory was developed by Adam Smith to counter
Mercantilism (Zero-sum game) while ‘AA’ is a positive -sum
game
Talks about who can do it better, cheaper and quicker.
‘AA’ says that one country would have an absolute advantage
over the other if it can produce same amount of goods or
greater output of a good or service than other countries using
the same amount of resources or even less.
EXAMPLE
Party A can produce 5ton of grapes per hour with 6
employees and
Party B can produce 10ton of grapes per hour with 6
employees. Assuming that the employees of both parties
are paid equally, Party B has an absolute advantage over
Party A in producing cassava per hour. This is because
Party B can produce twice as many grapes as Party A can
with the same number of employees.
•refers to the ability of a party to produce a particular good or
service at a lower marginal and opportunity cost over another.
•The conclusion drawn is that each party can gain by
specializing in the good where it has comparative advantage,
and trading that good for the other.
•Even if one party is more efficient in the production of all
goods (absolute advantage in all goods) than the other, both
countries will still gain by trading with each other, as long as
they have different relative efficiencies.
EXAMPLE
2 parties producing 2 commodities with the same
resources, time, all factors been equal.
Output as shown below:
Party A- 1000tons of grapes, 2500tons of apples.
Party B - 1000tons of grapes, 1000tons of apples.
•Both theories supports Free Trade approach unlike
the mercantilism theory.
•Both theories elucidates a concept of Division of
labour.
•They talk about gains for both home and host
country.( positive sum game).
•Specialization.
The purchaser cannot pay the
goods and services that they
avail.
The buyer rejects goods
and services as different
from the agreed upon specifications
Because of the trust given by a country to
its buyer, it allows to take of possession of
goods prior to payment.
A change in rules within a country that may
cause problems during transaction.
Intervention is a governmental action to prevent a
transaction being completed. It is done in order to
block goods coming from other places that must not
enter the country’s territory.
When a country changes its leader(s), it can result
to change in transactions and prices due to the
interference of the new government system.
In addition, the risk of unfavourable
exchange rate movements can also
happen due to the international trade.
is an economic policy of controlling or
restraining trade between nations through
methods such as tariffs and quotas
also through government regulations and
laws designed to discourage imports and
to prevent foreign domination of domestic
markets and companies
charges imposed on the price of imports
causes an increase in the revenue of the government
encourages demand for domestic products
demand for imports decrease
1) Revenue Tariffs
a set of rates designed primarily to raise money for
the government
2) Protective Tariffs
intended to artificially inflate prices of imports and
protect domestic industries from foreign
competition
a restriction on the quantity of imports a
country is allowed to have
increase in the price of imports
encourage demand for domestic products
