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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 Principles of Economics, 6/e Karl Case, Ray Fair
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 Principles of Economics, 6/e Karl Case, Ray Fair
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 Principles of Economics, 6/e Karl Case, Ray Fair
Exchange Rates
Domestic Prices of Timber (Per Foot) and Rolled Steel (Per Meter) in the United States and Brazil
UNITED STATES BRAZIL
$1 $2
3 Reals 4 Reals
The option of buying at home or importing will depend on the exchange rate.
Exchange Rates
If exchange rates end up in the right ranges, the free market will drive each country to shift resources into those sectors in which it enjoys a comparative advantage.
Only those products in which a country has a comparative advantage will be competitive in world markets.
Export subsidies are government payments made to domestic firms to encourage exports. Closely related to subsidies is dumping. A firm or industry sells products on the world market at prices below the cost of production.
A quota is a limit on the quantity of imports.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair