Grade 11 Economics

For Mrs. Wilson's Grade 11 Economic Education class.
Written by Sean Weeks: Web site:  email/msn

Module 1 Notes - Module 2 Notes - Module 3 Notes - Module 4 Notes - Module 5 Notes - Module 6 Notes - Module 7 Notes

Module 7

The International Economy
The Importance of economic relations
What is international trade?

1. International trade, also called foreign trade, deals with exports and imports
2. Imports are goods and services brought into Canada or bought be Canadians abroad. Exports are goods and services sold to another country or goods and services bought in Canada by foreigners.
3. When a country exports more than it imports, it has a trade surplus. When imports exceed exports, there is a trade deficit.

Why do countries trade?

1. All countries have resources (human, natural and financial) but to different degrees.
2. Countries try to get the most out of their resources.
3. Countries trade to earn foreign currency, which can buy foreign goods.
4. Countries tend to produce the specific goods and services that give them an advantage over other countries. This is called specialization
5. The advantage is sometimes called an absolute advantage and sometimes a comparative advantage.

What is absolute advantage?

1. An absolute advantage is the ability of a country to produce a good or service more cheaply than another country.

2. The same amount of resources will produce more in one nation than in another. For example, if Canada produces wheat more efficiently than the West Indies, but the West Indies produces bananas more efficiently than Canada, Canada has an absolute advantage in wheat, but the West Indies has an absolute advantage in bananas.

What is comparative advantage?

When a country produces two products, it will produce one of the two more efficiently than the other. When trading with another country it will specialize in the product with which it has a comparative advantage. For example, if the U.S. produced both oranges and grapes more efficiently than Canada, but has a greater advantage in the production of oranges, Canada will decide to produce grapes because, compared with oranges, grapes are produced comparatively more efficiently than oranges.

How do governments protect industries that are less efficient than the same industries in other countries (protectionism)?

Government protect industries by imposing:
a) tariffs, which are taxes paid on imports to raise their prices and therefore for restrict their competivness with domestically produced goods.
b) quotas, which are limits on the amount of foreign goods that can be imported;
c) subsides, which help domestic industries compete with foreign industries. ( help from Government)
d) technical barriers, which are technical specifications attached to imports, making it difficult for them to be imported.

What are the advantages of protectionism?

Protectionism allows the government to:
a) Protect jobs in domestic industries
b) Protect new industries until they become established and are able to compete
c) Protect key industries needed for vital national interests

What is free trade?

Free trade is when trade takes place between countries without tariffs, quotas and other barriers.

What are the advantages of free trade?

1. The theoretical advantages of free trade are that there are no tariffs or quotas, which should mean that prices are kept lower
2. There is more secure access to our largest export markets.
3. There is increases competition, which means productivity should improve. Theoretically the gross domestic product should increase in the long run.

What is the balance of payments?

1. The balance of payments is a table that documents Canada's financial transactions with the rest of the world.
2. When goods are imported, there is an outflow of funds to pay for these goods; when goods are exported, an inflow of funds occurs.
3. The balance of payments in considered favorable if the inflow of funds is greater than the outflow. An unfavorable balance is the reverse.
4. The balance of payments is divided into two accounts, capital and current.

What is the capital account?

The capital account in the investment made in Canada by foreigners balanced against the investment made abroad by Canadians. It deals with stocks, bonds money deposits, loans and borrowing

What is the current account?

The current account is the difference between the value of exports and imports. Goods such as lumber and cars are called visible trade, and services such as tourism and transportation are called invisible trade.

How does the balance of trade affects the value of the Canadian dollar?

The value of the canadian dollar tends to rise when it is in demand

What is the exchange rate?

The exchange rate is the price of one currency in relation to another.

What happens if the canadian dollar increases in value?
1. An increase in the value of the dollar is called appreciation.
2. The price of canadian exports will increase, and possibly the volume will decrease.
3. The price of imports to Canada will decrease, but possibly the volume will increase.

What happens if the canadian dollar decreases in value?
1. A decrease in the value of the dollar is called depreciation.
2. The price of canadian exports will decrease, but the volume may increase.
3. The price of imports to Canada will increase, but the volume may decrease

Why is the exchange rate important?
1. Many jobs in Canada are dependant on trade with other countries especially with the USA.
2. Exchange rate affects trade, and trade affects the value of the dollar.

The characteristics of a developing country include:
a) a low per capita income
b) low literacy rates
c) high birth rates
d) a low life expectancy
e) an unusual distribution of wealth
f) an increasingly urban population
g) low rates of capital investment
h) little technology development
i) industries that are labor intensive
j) low wages

What is the relationship between developing countries and the industrial world?

  1. Developing countries export raw materials and most of the work is done in the primary sector
  2. Developing countries tend to import manufactured goods from developed countries
  3. Exports of primary produce often experience massive price fluctuations, which lead to difficulty in long-term planning for developed countries.

What can industrialized countries do to help developing countries?

Industrialized countries can help developing countries through:

a) aid in the form of food, money, technology and education
b) trade (by giving preferential treatment and extending trade credit).

Module 7 - Glossary

Absolute advantage- a condition that exists when a nation can produce a good more efficiently (using fewer units of productive resources) than another nation.

Appreciation - an increase in value.

Balance of payments - The summary of all financial transactions between one country and the rest of the world over the period of one year.

Balance of trade - the difference between the money value of a country's  and the value of it's exports.

Capital account - the net flow of capital between one country and the rest of the world.

Comparative advantage - a condition that exists when a nation enjoys an absolute advantage in the production of two (or more) products, but has a relatively greater advantage in the production of one of those goods.

Current account - a record of the flow of goods and services between one country and the rest of the world.

Depreciation - a decrease in value.

Devaluation - a decision to reduce the value of currency by its government in relation to other currencies.

Developing country - a nation with an economy still in the developing stage (low on investment capital and under-industrialized).

Exchange rate - the price of one currency over another.

Export - to sell merchandise abroad.

Favorable balance of trade - when a country's balance of trade shows a surplus (the value of exports exceed the value of imports)

First World - industrialized nations, mainly in the West.

Foreign exchange - the currencies of other countries; used to pay for imported goods and services and for investment.

Foreign Investment - the acquisition by foreigners of business enterprises and other assets capable of yielding profits.

Free trade -  trade between countries without tariffs, quotas or barriers.

Import - to buy merchandise from abroad.

Per capita income - an indicator of the economic wealth of a country; the average income per person in a country.

Protectionism - the policy of protecting domestic industries from foreign competition by imposing tariffs or quotas on imported goods.

Quota - a limit set on the quantity on imports.

Revaluation - a decision by a government to  increase the value of its currency in relation to other currencies.

Subsidy - a payment made by way of financial aid.

Tariff - the taxes (duties) levied on imported goods by a government.

The North - Industrialized countries; they have relatively high income per capita and standard of living ; mostly found in the Northern Hemisphere.

The South - the underdeveloped countries of the Third World with low per capita income, inadequate economic development and a high birth rate; mostly found in the Southern Hemisphere.

Third World - the developing nations.

Module 1 Notes - Module 2 Notes - Module 3 Notes - Module 4 Notes - Module 5 Notes - Module 6 Notes - Module 7 Notes