Download 08CIV Chapter 26

Chapter Introduction
Section 1: International
Trade
Section 2: Economic
Systems
Section 3: Economies in
Transition
Visual Summary
The world is becoming more
interconnected every day.
One aspect of growing
globalization is the vast
number of foreign-made
products you can buy. These
products are in your stores
because of international
trade. Most of our trading
partners are either developed
or developing market
economies.
Section 1:
International Trade
The exchange of goods and
services helps create
economic interdependence
among peoples in different
places and different
countries. Nations trade with
one another to obtain goods
and services they themselves
cannot produce efficiently.
Section 2:
Economic Systems
An economic system is the
way a society organizes the
production and
consumption of goods and
services. Market and
command economies
approach economic decision
making in very different ways.
Section 3:
Economies in Transition
An economic system is the
way a society organizes the
production and
consumption of goods and
services. Both former
command economies and
developing nations face
severe challenges in creating
market economies.
Guide to Reading
Big Idea
The exchange of goods and services
helps create economic
interdependence among peoples in
different places and different
countries.
Guide to Reading
Content Vocabulary
• export
• free trade
• import
• exchange rate
• comparative
advantage
• balance of trade
• tariff
• quota
• trade surplus
• trade deficit
Guide to Reading
Academic Vocabulary
• consequently
• eventually
• flexible
Should Americans buy cheaper
products made in other countries,
even if it means fewer jobs for
American workers?
A. Yes
A. A
B. B
A
0%
0%
B
B. No
Why Nations Trade
Nations trade with one another to
obtain goods and services they
themselves cannot produce efficiently.
Why Nations Trade (cont.)
• Nations trade to obtain goods or services
they cannot readily produce.
• In 2005, U.S. exported about 10% of
goods produced; imported slightly more
– Example: Imports industrial diamonds,
exports commercial planes
Why Nations Trade (cont.)
• Comparative advantages allow nations to
specialize
– Example: Saudi Arabia—oil
– May be based on factors of production
Why Nations Trade (cont.)
• International trade creates jobs.
If the U.S. did not trade with other
countries, how do you think it would
affect your quality of life?
A. It would get better.
A
0%
C
C. It would stay the same.
A. A
B. B
C. C0%
0%
B
B. It would get worse.
Restrictions and Integration
Countries sometimes try to protect
their economies by setting up trade
barriers.
Restrictions and Integration (cont.)
• Governments use trade barriers to protect
their economies.
• Two most common trade barriers:
– Tariff—customs duty makes import
more expensive
– Quota—limits amount of product
imported
Imports and Exports, Selected Nations
Restrictions and Integration (cont.)
• Most countries prefer free trade or
reduced trade barriers.
Restrictions and Integration (cont.)
• Trade agreements:
– European Union—member countries
have used euro since 2002
– NAFTA: U.S., Canada, Mexico
• Trade among members growing faster than
are separate economies
• Opponents say American workers lose jobs
• Proponents say economic growth stimulated
Restrictions and Integration (cont.)
– World Trade Organization (WTO)
• Oversees trade among nations
• Helps with negotiations, development, trade
disputes
The North American Free Trade
Agreement (NAFTA)
Should the U.S. use trade barriers to
keep imports from flooding our market?
A. Yes
B. No
A. A
B. B
0%
A
0%
B
Financing Trade
A nation’s balance of trade can be
either a surplus or a deficit.
Financing Trade (cont.)
• A nation’s balance of trade is either surplus
or a deficit.
Financing Trade (cont.)
• Exchange rate—value of a nation’s
currency in relation to another currency
– Most countries use flexible exchange
rate system
– Currency’s value can change daily
– Affects nation’s balance of trade
Financing Trade (cont.)
• Trade surplus—value of exports exceeds
value of imports
• Trade deficit—value of imports exceeds
value of exports
– Tends to devalue currency
Financing Trade (cont.)
• Deficits correct themselves through price
system
Do you agree that a flexible exchange
rate generally benefits a nation’s
balance of trade?
A. Agree
B. Disagree
A. A
B. B
0%
A
0%
B
Guide to Reading
Big Idea
An economic system is the way a
society organizes the production and
consumption of goods and services.
Guide to Reading
Content Vocabulary
• market
economy
• per capita
GDP
• socialism
• communism
• mixed economy
• command
economy
Academic Vocabulary
• intervene
• exploit
Do you think the United States’ market
economy is the best economic system?
A. Yes
B. No
A. A
B. B
0%
A
0%
B
Market Economies
Market economies are characterized by
individual freedom, competition, and
less government control.
Market Economies (cont.)
• In a market economy, supply and
demand determine how decisions are
made.
Market Economies (cont.)
• Market economy:
– Private citizens own factors of
production
– Supply and demand set prices,
production
– Decentralized
Market Economies (cont.)
– Pure form does not exist
– Most of world’s largest economies
– Higher per capita gross domestic
product (GDP)
Market Economies (cont.)
• Government intervenes to
– Prevent monopolies
– Punish lawbreakers
– Influence externalities
Do you agree that a pure market
economy could provide all the
services needed by citizens?
A. Agree
B. Disagree
A. A
B. B
0%
B
A
0%
Command Economies
In command economies, the
government tells producers what to do.
Command Economies (cont.)
• In a command economy, economic
decisions are made by the government.
• Also called controlled economy
• Socialism: society should control
production, distribute wealth equally
Command Economies (cont.)
• Communism: one class, holding all
property in common
– Karl Marx advocated violent revolution
– No need for a government
Command Economies (cont.)
• Command Economy:
– Government makes three basic
allocation decisions:
• What to produce
• How to produce
• For whom to produce
Command Economies (cont.)
– Rely on planning agencies
– Economy grows more slowly
– Lower per capita GDP
Per Capita GDP, Selected Nations
Do you think it is a good idea that a
government decides all economic
decisions for a country?
A. Yes
B. No
A. A
B. B
0%
B
A
0%
Mixed Economies
Today the American economy and
others like it are described as mixed
economies.
Mixed Economies (cont.)
• Many modern economies combine
features of market and command
economies to form a mixed economy.
Mixed Economies (cont.)
• Mixed Economy:
– Combines elements of market and
command economies
– Most world economies
– Individual freedom with some
government intervention
Who do you think can best make
decisions regarding resource
allocation?
A. Producers
A
0%
0%
B
D. a combination
A
B
C0%
D
D
C. Consumers
A.
B.
C.
0%
D.
C
B. Governments
Guide to Reading
Big Idea
An economic system is the way a
society organizes the production and
consumption of goods and services.
Guide to Reading
Content Vocabulary
• developing country
• traditional economy
Academic Vocabulary
• collapse
• nevertheless
Do you think Russia and China are
better off now that they have more
open economies?
A. Yes
B. No
A. A
B. B
0%
A
0%
B
Changing Economies
Russia and China are making the
difficult transition from command to
market economies.
Changing Economies (cont.)
• Russia and China are moving away from
command economies toward market
economies.
Comparing Economies: Russia,
China, and the U.S.
Changing Economies (cont.)
• Russia
– Soviet Union collapsed in 1991
– Soviet production inefficient
– State-owned factories transferred to
private owners
– Stock markets created
Changing Economies (cont.)
– Difficult transition
– Economy showing signs of improvement
Changing Economies (cont.)
• China
– In 1980s, economy behind other Asian
economies
– Began market reforms—some private
factory ownership
– Reunification with Hong Kong in 1997
– Average 10 percent annual growth for
20 years
– About 160 million unemployed
Which country do you think is
adapting better to a market-based
economy?
A. China
B. Russia
A. A
B. B
0%
B
A
0%
Developing Countries
Developing countries face many
problems as they try to create market
economies.
Developing Countries (cont.)
• Developing countries are those whose
average per capita incomes are far below
those of industrialized countries.
Developing Countries (cont.)
• Traditional economy
– Decisions based on habit
– People Often follow same career as family
Developing Countries (cont.)
• Obstacles to development:
– High population growth rate
– Geography, natural resources
– War, debt, corruption
Social Statistics Comparison,
Selected Regions
Developing Countries (cont.)
• Help for developing countries
– International Monetary Fund (IMF)
– International Bank for Reconstruction
and Development (World Bank)
– Debt forgiveness
What is the worst by-product of war
in a developing nation?
A. Destroyed roads
and buildings
A
0%
0%
B
D. Fewer workers
A
B
C0%
D
D
C. Depressed economy
A.
B.
C.
0%
D.
C
B. Hidden land mines
International Trade
• Nations trade with one another to obtain goods
and services that they themselves cannot produce
efficiently.
• Comparative advantage is the ability of a country
to produce a good at a relatively lower cost than
another country can.
• Countries sometimes try to protect their
economies by setting up trade barriers, such as
tariffs and quotas.
International Trade (cont.)
• A nation’s balance of trade can be either a surplus
or a deficit.
• A nation’s
currency can
be strong or
weak.
Economic Systems
• Market economies, or capitalist systems, are
characterized by individual freedom, competition,
and less government control.
• In command economies, the government tells
producers what to
do, resulting in
inefficiency and
slow economic
growth.
Economies in Transition
• Russia and China, two former command economies,
with the nations of Eastern Europe, are making the
difficult transition from command to market economies.
• Developing nations are
nations with little
industrial development
and low standards of
living.
• Developing countries
with traditional economies,
many in Africa and Asia,
also face problems as
they try to create market
economies.
The United States
has a market
economy. Individuals
choose which goods
to produce and the
prices for which the
goods will sell.
export
to sell goods to other countries; or a
good produced in one country, then
sold to another
import
a good purchased from one country
by another
comparative advantage
the ability of a country to produce a
good at a lower opportunity cost than
another country can
tariff
a customs duty; a tax on an imported
good
quota
a limit on the amount of foreign goods
imported into a country
free trade
policy of reduced trade barriers
exchange rate
the price of one nation’s currency in
terms of another nation’s currency
balance of trade
the difference between the value of a
nation’s exports and its imports
trade surplus
situation in which the value of the
products exported by a country
exceeds the value of its imports
trade deficit
situation in which the value of the
products imported by a country
exceeds the value of its exports
consequently
as a result
eventually
in the end
flexible
to adapt easily
market economy
system in which individuals own the
factors of production and make
economic decisions through free
interaction
per capita GDP
Gross Domestic Product per person
command economy
an economic system in which the
major economic decisions are made
by the central government
socialism
economic system in which
government owns some factors of
production and distributes the
products and wages
communism
economic system in which the central
government directs all major
economic decisions
mixed economy
system combining characteristics of
more than one type of economy
intervene
to come between
exploit
to take advantage of
developing country
a country whose average per capita
income is only a fraction of that in
more industrialized countries
traditional economy
an economic system in which the
decisions of what, how, and for whom
to produce are based on custom or
habit
collapse
to fall apart
nevertheless
even so
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