Chapter 28: International Trade and Finance

LEARNING OBJECTIVES
The steps to achieve the learning objectives include reading sections from your textbook and the
causation chain game, which is available directly on the Tucker web site. The steps also include
references to Ask the Instructor Video Clips, the Graphing Workshop available through
CourseMate on the Tucker website.
#1 - Explain the importance of comparative advantage.
Step 1

Read the sections in your textbook titled Why Nations Need Trade, andComparative
and Absolute Advantage.

Step 2

Watch the Graphing Workship See It! tutorial titled Specialization and Trade. Study
the trade in beef and tomatoes between two nations.

Step 3

Read the Graphing Workshop Grasp It! exercise titled Specialization and Trade.
This exercise uses a slider bar to demonstrate how a rancher and a farmer benefit from
specialization and trade.

Step 4

Create a new graph at the Graphing Workshop Try It! titled Specialization and
Trade. This exercise illustrates how two countries mutually benefit from trade.

The Result

Following these steps, you have learned that comparative advantage refers to the relative
opportunity costs between countries producing the same goods. World output and
consumption are maximized when each country specializes in producing and trading
goods for which it has a comparative advantage.

#2 - Discuss the argument for and against trade protectionism.

Step 1

Read the sections in your textbook titled Free Trade versus Protectionism,
Arguments for Protection, and Free Trade Agreements.

Step 2

Listen to the Ask the Instructor Video Clip titled Why Dont We Restrict Trade Among
States? You will learn the importance of the law of comparative advantage.

Step 3

Listen to the Ask the Instructor Video Clip titled What Are the Arguments for Trade
Restrictions? You will learn reason for and against the infant industry, national security,
and employment arguments for protectionism.

The Result

Following these steps, you have learned arguments for embargoes, tariffs, and quotas
include the infant industry, national security, employment, and cheap foreign labor
arguments. In most cases, economists reject these arguments.

#3 - Understand the meaning of the trade deficit and how exchange rates are determined.
Step 1

Read the sections in your textbook titled The Balance of Payments and Exchange
Rates.

Step 2

Watch the Graphing Workshop See It! tutorial titled Foreign Exchange Market.
Study the exchange rate for the U.S. dollar in terms of the euro is determined.

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Step 3

Read the Graphing Workshop Grasp It! exercise titled Foreign Exchange Market.
This exercise uses a slider bar to demonstrate how the exchange rate for the U.S. dollar in
terms of the euro is determined.

Step 4

Create a new graph at the Graphing Workshop Try It! titled Foreign Exchange
Market. This exercise illustrates how a change in the demand for dollars curve affects
the market in which U.S. dollars and Mexican pesos are exchanged.

Step 5

Play the Causation Chains Game titled Change in the Supply and Demand Curves
for Dollars.

Step 6

Listen to the Ask the Instructor Video Clip titled How Is Our Economy Related to the
Rest of the World? You will learn how exchange rates affect the costs of imports and
exports.

Step 7

Listen to the Ask the Instructor Video Clip titled How Do We Pay for Imports? You
will learn the history of the transition form the gold standard to a floating exchange rate
system.

Step 8

Listen to the Ask the Instructor Video Clip titled What Causes the Demand for
Foreign Exchange to Change? You will learn how changes in the supply and demand
for currency affect exchange rates.

Step 9

Listen to the Ask the Instructor Video Clip titled Is a Strong Dollar a Good Thing?
You will learn the impact of a stronger dollar relative to the yen.

The Result

Following these steps, you have learned how the bookkeeping record (balance of
payments) and the U. S. balance of trade are computed. Also, you have learned that the
price of one currency in units of another currency (the exchange rate) is determined by
demand and supply in the foreign exchange market.

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