This unit will allow us to explore: Why the world has become a global economy. Why people and countries specialize in producinggoods and services. The concept of “free trade.” Who benefits and who does not benefit from freetrade.
Answer this question…“What does the termGLOBAL ECONOMYmean to you?”
A Global Economy is: The interconnected economies of the nations ofthe world. Fueled by TRADE: Specific area of business or industry, skilledoccupation, or the people who work in a specificarea of business or industry International Trade: The exchange of goods and services betweennations.
Economies that are developed areGLOBALIZED by… Multinational Corporations: a company that does business in manycountries and has facilities and offices aroundthe world Can you identify a multinationalcorporations?
Domestic Trade: The production, purchase, and sale ofgoods/services within home country. World Trade: The exchange of goods and services acrossinternational boundaries. Imports: Goods and services that one country buys fromanother country Exports: Goods and services that one country sells to anothercountry
Balance of Trade: The difference in value between a country’simports and exports over a period of time. Trade Surplus: A country exports more than it imports. Trade Deficit: A country imports more than it exports. Is it better to have a surplus or deficit?
Trade Specialization: Countries that focus on particular activities,areas or product. Builds and sustains a market economy. Comparative Advantage: The ability of a country/company to produce aparticular good more effectively than another. Top 10 Countries with a U.S. Trade Deficit Top 10 Countries with a U.S. Trade Surplus
Businesses must convert their moneyinto that nation’s currency ($). Exchange Rate: The price at which one currency can buyanother currency. Changes daily. Countries follow ratesto find best prices forproducts.
1. What is the global economy?1. The interconnected economies of the nations ofthe world.2. What is the difference between domestic tradeand international trade?1. Domestic trade is between parties within acountry and international trade is between partiesin different countries.3. Why would a country want its currency itsappreciate?1. So citizens can buy more goods and services inother countries.
Why might a countryimpose limits orrestrictions on itsown trading polices?
Competition often leads to disputes, thereforetrade policies may differ among countries.Protectionism: The practice of government putting limits onforeign trade to protect businesses at home. Examples: Tariffs, quotas, embargos
Tariff: A trade barrier where tax is placed on imports toincrease price in domestic markets. Quota: A trade barrier where limits are placed onquantities of products that can be imported. Examples of U.S. Tariff/Quota Commodities Embargo: A political or military trade barrier that bans theimporting/exporting of products. Example: U.S. can not import Cuban products,cannot export military products.
Foreign competition can lower demand forproducts made at home. Protect home companies from unfair competition. Protect products related to national defense. Foreign cheap labor can lower wages/threatenjobs. Countries can become too dependent on others forimportant products. Other countries may not have the sameenvironmental or human rights standards.
Some countries think no trade restrictions shouldexist throughout our globalized economy.Free Trade: Few or no limits on trade between countries. Led to the establishment of trade alliances North American Free Trade Agreement (NAFTA) European Union (EU) Association of Southeast Asian Nations (ASEAN)
Opens new markets in other countries. Creates new jobs. Competition forces business to be moreproductive/efficient. Consumers have more choices in products. Promotes cultural understanding/cooperationamong countries. Helps countries raise their standard of living.
1. Give 3 reasons for protectionism.1. Protects businesses from unfair competition, fromcountries that violate U.S. human rights orenvironmental standards, and fromoverdependence on another country’s products.2. Give 3 reasons for free trade.1. encourages competition, gives consumers morechoices for products, promotes culturalunderstanding3. Define some of the world’s major trade alliances.1. NAFTA, the EU and ASEAN