Models

The two motivations for international trade are the fact that it is voluntary and that it creates wealth. International trade encourages individuals and businesses to specialize - to produce a limited number of goods and services - and leads to worldwide interdependence. Specialization may occur because of particular human or national resources unique to a nation. How a nation decides what to produce is determined by absolute and comparative advantage. VIDEO OBJECTIVES - Explain how specialization encourages trade - Explain how absolute advantages can influence economic choices - Explain how comparative advantages can affect a nation's economy

Money is a key to the economic process. For centuries people have traded and bartered, but the use of money has made more sophisticated transactions possible. Money serves basic functions and has basic characteristics to assist in these exchanges. Societies have historically used different items as money, but regardless of which form money takes it ultimately must satisfy the needs of producers and consumers. VIDEO OBJECTIVES - Explain the functions that money serves - Describe the characteristics that an item must have to be used as money - Identify the sources of money's value - Identify and describe the types of money that are used in the United States

The money needed to carry on international trade is funneled through foreign exchange markets where one nation's currency is converted into another's. These markets also allow international business transactions. Once the value of one currency is established in relation to another, a foreign exchange rate has been established. Since World War II, trading nations have used two foreign exchange systems: first, the adjustable-peg system and later the floating, or flexible, system. Nations determine the strength of their international trade by measuring the balance of payments and the balance of trade. VIDEO OBJECTIVES - Explain why foreign exchange rates are necessary - Describe how a nation determines its balance of payments - Explain the significance of the balance of trade

Factors other than price can affect demand for a product over time, causing a shift in its demand curve. These shifts illustrate a change in demand at each and every price. Changes in any of the determinants of demand can produce an entirely new demand curve for a good or service. VIDEO OBJECTIVES - Explain what it means for a product's demand to shift - Identity and describe the factors that can shift demand for a product - Explain how substitute goods differ from complementary

To determine whether a price change is in their best interest, producers need to determine elasticity of demand. The demand for a good or service can be either elastic or inelastic. By using the total-revenue test, produces are able to make pricing decisions that will earn the most revenue. VIDEO OBJECTIVES - Define demand elasticity - Describe the difference between elastic and inelastic demand - Explain how demand elasticity is measured

Leaders of developing nations use either a socialist or a capitalist model of decision making. Regardless of which model the leaders use, however, they must establish development plans to guide the use of their scarce resources. In creating these plans, leaders must consider all the production possibilities and trade-offs related to a proposed course of action. Developing nations rely on both domestic and foreign funds to finance economic development. VIDEO OBJECTIVES - Describe the advantages and disadvantages of the socialist and capitalist models of decision making - Describe the types of aid that governments of developed countries extend to developing countries - Identify the key public sources of foreign aid