1. Advantages
1.1. developed their economies, increased production of goods, and met market demands
1.2. increased business opportunities
2. International trade
2.1. Why is developed?
2.1.1. Certain countries are able to produce some goods more efficiently than other countries
2.1.1.1. Efficient production's factor
2.1.1.1.1. geographical location
2.1.1.1.2. climate
2.1.1.1.3. Natural resources
2.1.1.1.4. Labor's factor
2.1.2. satisfy their needs and wants
3. Adam Smith's theory
3.1. Description
3.1.1. in a free market, countries produce whatever they can most efficiently grow or manufacture, or what is of the greatest advantage to them
3.1.2. competition guarantees that countries import products which are most efficiently manufactured abroad and export products which are most efficiently produced domestically
3.1.3. Price is determined by the supply side of the market
3.2. David Ricardo refinement
3.2.1. an exporting country does not have to be the most efficient producer of the product; it only has to be more efficient than the country which imports the product
3.2.2. Mutually beneficial trade arises when one country has a comparative advantage
4. Governments control
4.1. Export
4.1.1. Reason
4.1.1.1. Wealth accrues to the exporting country so that country enjoys an advantage if it exports more than it imports.
4.1.2. Methods
4.1.2.1. Some countries have special programs to encourage exports
4.1.2.1.1. programs that provide marketing information, establish trade missions, subsidize exports and provide tax benefits or incentives
4.1.2.2. Government subsidies allow companies to sell products cheaply
4.1.2.2.1. This practice is known as dumping : selling on a foreign market at a price below the cost of production
4.2. Import
4.2.1. Reason
4.2.1.1. protect a domestic industry because that industry provides employment for the population
4.2.1.2. labor unions encourage the government to enact protectionist controls
4.2.2. Methods
4.2.2.1. impose taxes and quotas to restrict imports of certain products
4.2.2.1.1. import tariffs
4.2.2.1.2. Impose quotas
5. System of international monetary exchange
5.1. Currency exchange rate
5.1.1. Most currencies are now exchanged on a floating rate basis
5.1.2. If large amounts of a country’s currency are being exchanged, the exchange rate may vary greatly because demand, and therefore, the price of a currency is either rising or falling.
5.1.2.1. Sometimes these great fluctuations in value threaten economic stability; then cenral banks change market forces by purchasing a foreign currency to support its price and maintain stability
6. Balance of payments
6.1. Definition
6.1.1. The amount of money that goes in and out of a country
6.2. Types
6.2.1. a country is exporting more than it imports, it is receiving foreign currency and has a balance of trade surplus
6.2.2. importing more than it exports, it is sending money out of the country and has a balance of trade deficit
6.3. Effect on currency value
6.3.1. Continued surpluses or deficits change the demand for the currency of a country and cause its value to float either upward or downward