Unit VI –International Trade(5% of AP Microeconomics Exam)

Objectives:

  • NCEE Content Standard 5 –Voluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation, and among individuals or organizations in different nations.
  • NCEE Content Standard 6– When individuals, regions, and nations specialize in what they can produce at the lowest cost and then trade with others, both production and consumption increase.
  • NCEE Content Standard 7– Markets exist when buyers and sellers interact. This interaction determines market prices and thereby allocate scarce goods and services.
  • NCEE Content Standard 8 – Prices send signals and provide incentives to buyers and sellers. When supply or demand changes, market prices adjust, affecting incentives.
  • NCEE Content Standard 9 – Competition among sellers lowers costs and prices, and encourages producers to produce more of what consumers are willing and able to buy. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them.

Vocabulary: (Big Topics in Bold)

Consumer SurplusProducer SurplusWorld Price

Domestic PriceExportsImports

Tariffs QuotasDeadweight Loss

ProtectionismFree TradeTrade Deficit and Surplus

Exchange RateAppreciationDepreciation

Numbers:Visuals:

Benefit Cost AnalysisSupply and Demand Model

*Based on school calendar, we may have an opportunity to review the Labor Market from Unit 4.

Unit VI Calendar:

Monday / Tuesday / Wednesday / Thursday / Friday
April 9
Introduction to Trade / 10
Trade and Surplus / 11
Barriers of Trade / 12
Birka
Hwk: Read Modules 4 and 9 / 13
Brika
16
FRQ and Trade / 17
Trade and Labor / 18
Trade and Labor / 19
Currency / 20
AP Practice MC Test

What you should know at the end of this unit?

  • A low domestic price indicates that the country has a comparative advantage in producing the good and that he country will become an exporter. A high domestic price indicates the opposite and the country will become an importer.
  • When a country allows trade and becomes: Exporter – producers gain, consumers lose; Importer – producers lose, consumers gain. In both cases, the gains from trade exceed the losses.
  • A tariff – a tax on imports – moves a market closer to the equilibrium that would exist without trade and, therefore, reduces the gains from trade. Domestic producers and government gain, losses to consumers exceed these gains.
  • Arguments for trade restrictions: job protection, national security, etc. These arguments do have merit, but economists believe that free trade is usually the better policy.