Economics: Today and Tomorrow © 2008

Chapter 18: Trading With Other Nations

Chapter Overviews

Section 1: The Benefits of World Trade
International trade involves huge corporations but affects the everyday lives of workers and consumers. A country has an absolute advantage when it can produce more output per unit of input than can another country. Comparative advantage is the ability of a country to produce a product at a lower opportunity cost than another country.

Section 2: Financing World Trade
Under a system of fixed exchange rates, national governments set the value of their currencies relative to other currencies. Most of the world’s nations turned to a flexible exchange rate system where supply and demand determine currency values.

Section 3: Restrictions on World Trade
The chapter concludes with an examination of how imports can be restricted by tariffs, quotas, and embargoes. The main arguments for and against free trade are included, along with descriptions of some of the current international and regional trade agreements.