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19
International Trade,
Comparative Advantage, and
Protectionism
Prepared by: Fernando
Quijano and Yvonn Quijano
International Trade
All economies, regardless of their size,
depend to some extent on other
economies and are affected by events
outside their borders.
The internationalization or globalization
of the U.S. economy has occurred in the
private and public sectors, in input and
output markets, and in business firms and
households.
2002 Prentice Hall Business Publishing
Exchange Rates
When trade is freeunimpeded by
government-instituted barrierspatterns of
trade and trade flows result from the
independent decisions of thousands of
importers and exporters and millions of
private households and firms.
To understand these patterns we must
know something about the factors that
determine exchange rates.
2002 Prentice Hall Business Publishing
Exchange Rates
An exchange rate is the ratio at which two
currencies are traded. The price of one
currency in terms of another.
For any pair of countries, there is a range of
exchange rates that can lead automatically
to both countries realizing the gains from
specialization and comparative advantage.
Exchange rates determine the terms of
trade.
2002 Prentice Hall Business Publishing
The Sources of
Comparative Advantage
Factor endowments refer to the quantity
and quality of labor, land, and natural
resources of a country.
Factor endowments seem to explain a
significant portion of actual world trade
patterns.