Download 1 Chapter 17 International Trade •1. Absolute and Comparative

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Chapter 17 International Trade
•1. Absolute and Comparative Advantage
•2. Trade Barriers and Agreements
•3. Measuring Trade
Resource Distribution and Specialization
•Factors of Production
•Natural Resources
•Capital and Labor
•Unequal Resource Distribution
•Specialization and Trade
–importing-items coming into country
–exporting-items leaving the country
1. Absolute and Comparative Advantage
•Absolute Advantage - the ability to produce more of a given product using a given
amount of resources
•Comparative Advantage - the ability to produce a product most efficiently given all the
other products that could be produced
•law of comparative advantage - a nation is better off when it produces goods and
services for which it has a comparative advantage
Comparative Advantage and World Trade
•Interdependence - the shared need of countries for resources, goods, services, labor, and
knowledge supplied by other countries
The United States and Trade
•The United States as an importer - world’s top importer (15% of the world’s total trade)
•The United States as an exporter - world third largest exporter, close behind Germany
and China
The Effects of Trade Employment
•Specialization and Job Loss
•Trade allows nations to specialize in producing a limited number of goods while
consuming a greater variety of goods
•However, specialization leads can lead to job loss or job opportunities
2. Trade Barriers and Agreements
•Trade Barriers - trade restrictions on foreign items coming into the country
•tariff - tax on imported goods
•Import quota - set limit on the amount of a good that can be imported
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•Sanctions - actions a nation or group of nations takes in order to punish or put pressure
on another nation
•Embargo - a ban or trade with a particular country
Effects of Trade Barriers
•Increased prices on foreign goods
•Trading Wars - a cycle of escalating trade barriers
Arguments for Protection
•Protectionism - the use of trade barriers to shield domestic companies from foreign
competition
•Protecting jobs
•infant companies - early stages of development
•safeguard national security
Trade Agreements
•Free trade - lowering or eliminating protective tariffs and other trade barriers between
two or more nations
•World Trade Organization - uniting global trade and making it more free
•The European Union - agreement to abolish tariffs and trade restrictions among member
nations
•NAFTA - North American Free Trade Agreement - region where a group of countries
agree to reduce or eliminate trade barriers
The Role of Multinationals
•Large corporations that sells goods and services throughout the world
3. Measuring Trade
•The difference in a dollar
Foreign Exchange
•Exchange Rates - the value of a nation’s currency in relation to a foreign currency
•Appreciation - increase in the value of currency
•Depreciation - decrease in the value of currency
•Foreign Exchange Markets - system of financial institutions that facilitate the buying
and selling of foreign currencies
Exchange Rate Systems
•Fixed Exchange Rates - governments try to keep the values of their currencies constant
against one another
•Flexible Exchange Rate system - exchange rate is determined by supply and demand
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Balance of Trade
•The relationship between the value of a country’s exports and the value of its imports
•trade surplus - situation in which a nation exports more goods and services than it
imports
•trade deficit - situation in which a nation exports less goods than it imports
•balance of payment - the value of all monetary transactions between a country’s
economy and the rest of the world
The United States Trade Deficit
•The United States imports more than it exports, resulting in a trade deficit
•began in the 1970’s when OPEC increased the price of oil
Chapter 18 Development and Globalization
•1. Levels of Development
•2. Issues in Development
•3. Economies in Transition
•4. Challenges of Globalization
1. Levels of Development
•Development - the process by which a nation improves the economic, political, and
social well-being of its people
•Developed Nations - a nation with a relatively high average level of material well being
•Less developed - relatively low level of material well being
•newly industrialized countries - less developed country that has made great progress
toward developing its economy
Measuring Development
•Per Capita GDP - a nation’s gross domestic product divided by its population
•Industrialization - organization of an economy for the purpose of manufacturing
•literacy rate - over the age of 15 can read or write
•life expectancy - the average life span of an individual
Characteristics of Developed Nations
•Quality of life
•High Productivity
•Urbanization and Infrastructure
Characteristics of Less Developed Countries
•Low productivity - subsistence agriculture - farming in which a person makes enough
for his or her family
•low quality of life
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2. Issues in Development
•Some nations hinder development due to illiteracy and poor nutrition
Rapid Population Growth
•A measure of how rapidly a country’s population increases in a given year
Limited Resources and Capital
•Physical capital
•Education and Training
•Nutrition and Health - (Malnutrition -inadequate nutrition
Political Obstacles
•Political factors may also limit or even reserve a nation’s development
Financing Development
•Internal Financing - capital derived from the saving of a country’s citizens
•foreign investments - capital that originates in other countries
–foreign direct investment-the establishment of a business by investors from
another country
–foreign portfolio investment-purchases made in a country’s financial markets by
investors from another country
International Institutions
•World Bank
•United Nations Development Program
•International Monetary Fund
–debt rescheduling- agreement between a lending nation and a debtor nation that
lengthens the time of debt payment and forgives part of the loan
–stabilization program - agreement between a debtor nation and the International
Monetary Fund in which the nation agrees to change its economic policy to
match IMF goals
Non governmental Agencies
•Independent groups that raises money and used it to fund aid and development programs
3. Economies in Transition
•Change is always challenging
Toward a Market Economy
•Privatization - sale of transfer of government-owned business to individuals
•Protecting Property Rights
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Transitions in Russia
•Fall of Communism
•A Painful Transition
•Russia in the New Century
Growth in Asia
•China - the economic power of the world
•India - the world’s second most populous nation after China
Challenges in Africa and Latin America
•Persistent Poverty in Africa
•Economies largely based on subsistence farming
•In Latin America, the two biggest success stories are Brazil and Mexico - abundant
resources
4. Challenges in Globalization
•Globalization - the increasingly tight interconnection of producers, consumers, and
financial systems around the world
Causes of Globalization
•Rapid Transportation and Communication
•Expansion in the Free Market
•Trading Blocs
•Foreign Exchange Markets
•Free Trade Agreements
Issues in Globalization
•Interconnected Financial Markets
•Multinational Corporations
•Job Loss
Population Shifts
•Rural to Urban - farm to city
•Country to Country- leave less developed countries and go to better ones
•remittances - cash payments sent by workers who have migrated to a new country to
family members
•brain drain - migration of the best educated peoples of less developed countries
Challenges Ahead
•Developed v. Developing
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•Environmental Protection
–sustainable development - the goal of meeting current development needs
without using up resources needed by future generations
–deforestation -large scale destruction of forests
The United States and the World Economy
•Adapting to a changing workplace
•the pressure to compete
•the pressure to innovate