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International Trade and Exchange Rates

International Trade and Exchange Rates

International Trade and Exchange Rates

Do I really need a mechanic? Technically I can learn how to fix cars when my car breaks down, right? But is it efficient to do so? Maybe yes or maybe no! As we discussed in microeconomics, people are utility maximizers (always seek to gain the most possible outcome while giving up the less resources), people are rational in their choices (choose the best option available), and people are self-interested (choose what gives them the ultimate satisfaction). These concepts are also applicable to international trade. Countries trade with one another for economic reasons.

Please review the following video to increase your understanding of the effect of specialization on gains from trade.

·    Specialization and TradeLinks to an external site.

· Take a closer look at our local economy or a country of your interest and pick a good or a service that you believe America (or your country of choice) has a comparative advantage in producing. Discuss the factors that you believe give America (or your country of choice) such an advantage.

· In addition, is it better for a country to export more or to import more?

· Moreover, what is the impact of trade surplus (exporting more than importing) and trade deficit (importing more than exporting) on GDP, employment, and the exchange rate of the country’s currency?