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Everything discussed in Lesson 20a
about trade (specialization and exchange) can be applied to
trade between individuals, cities, counties, states, and
countries. In this lesson we will focus specifically on
INTERNATIONAL trade (trade between countries).
Comparative advantage still applies,
but there are some differences between INTERnational trade
(trade between countries) and INTRAnational trade (trade
within a country). These differences include greater
distances, politics, and the use of different
currencies.
Lesson 20b begins with a review of
the FACTS of international trade (see: Lecture
Outline). Then we will look at
what happens when politicians restrict trade (and therefore
cause inefficiency). And we will finish up with learning how
to use a supply and demand graph to understand why exchange
rates change.
Concerning exchange rates: students
often believe that a strong dollar is good and a weak dollar
is bad. This is not always true. If the U.S. dollar
appreciates (increases in value) it is often called a
"strong dollar". What a strong dollar does is make it
cheaper for Americans to buy foreign imports (or make it
cheaper to take a ski trip in Canada). A strong dollar also
makes it more expensive for foreigners to purchase U.S.
exports. Therefore, a strong dollar may be good for
consumers because of cheap imports, but bad for workers
because of less exports, fewer jobs, and more
unemployment).
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