Economics Unit 2
Protective Tariff
A tax on imported goods designed to protect domestic producers from foreign competition. A tariff is one form of trade barrier. Raise revenue and to protect domestic industries from competition.
Developed Country
A wealthy , industrialized country in which the majority of people have more than enough income to meet their basic needs and maintain a high standard of living.
Voluntary Exchange
The act of willingly trading one item or service for another. Both parties in a voluntary exchange expect to gain from it.
Division of Labor
The allocation of separate tasks to different people. Division of labor in the production of a good or service is based on the principle of specialization.
Debt Forgiveness
The cancellation of all or part of a debt. Once forgiven, a debt does not have to be repaid.
Economic Interdependence
The characteristic of a society in which people rely on others for most of the goods and services they want. This interdependence results from specialization and trade.
Comparative Advantage
The condition that exists when someone can produce a good or service at a lower opportunity cost than someone else.
Absolute Advantage
The condition that exists when someone can produce a good or service using fewer resources than someone else.
Specialization
The development of skills or knowledge in one aspect of a job or field of interest. People who specialize become expert in a particular activity. Increase productivity and utility of production resources.
Balance of Trade
The difference between the value of a country's exports and the value of its imports.
Barter
The direct exchange of goods or services without the use of money, typical in traditional economies.
Capital Flow
The movement of money into and out of a country through foreign investment and other financial activities.
Foreign Debt
The part of country's total debt that is owned to foreign creditors.
Free Trade
The policy of eliminating barriers to international trade. Free trade allows goos and services to move more freely across borders.
protectionism
The policy of erecting trade barriers to shield domestic markets from foreign competition. Protectionism limits foreign trade.
Economic Development
The process by which a country makes economic progress and raises its standard of living.
Globalization
The process by which people around the world, along with their economic activities, are becoming increasingly interconnected.
When the dollar is strong...
The reverse occurs. Imports from other countries become cheaper, while exports become more expensive.
Global Economy
The system of economic interaction among the countries of the world. It includes international trade as well as transfers money, resources, and technology among countries.
Foreign Exchange
The trading of one national currency for another. foreign exchange is a necessary element of global trade.
Why do countries trade?
To get the foods and services they value at the lowest cost.
Why do countries regulate trade?
To shield domestic markets from foreign competition, satisfy political demand at home.
U.S Service Exports
Tourism, information services, banking, transportation, education, entertainment, business, and construction.
Costs of Globalization for Local Cultures
Weakens local traditions and extinction of languages.
Trade Surplus
When a country exports more than it imports.
Trade Deficit
When imports exceed exports.
Appreciation
When one currency gains value relative to another currency.
Depreciation
When one currency loses value relative to another currency.
Specialization Encourages Trade
When people specialize, they no longer produce everything for themselves, as a result, they must trade with others to obtain what they don't produce. Trade to satisfy own wants and focus on what they do best.
Trade Creates Economic Interdependence
When we specialize and trade, we depend on other people or counties to produce many of the goods/services we want.
Impact of Global Trade of U.S Workers
Workers may lose their livelihoods as a result of global trade because their industries fail in the face of foreign competition.
Differentiated Products
products that are essentially the same, but are distinguished from each other by variations in style, materials, or taste. Helps promote global trade.
Benefits of Globalization for the Environment
As people grow wealthier, they will become more concerned about the environment.
How does trade make us wealthier?
It puts goods in the hands of those who value them, it increases the quantity and variety of goods, and it lowers the cost of goods. Trade creates more winners than losers.
Voluntary Export Restraints
Limits the quantity of a good that can be exported from a country during a specific time period time. This is self-imposed by the exporting country.
Human Development Index
Measures a country's level of human development along three dimensions. Life expectancy, education, and standard of living.
Import Quotas
Places a limit on the quantity of a good that can be imported during a specified period of time. Doesn't raise revenue for govt. and raises prices for consumers.
Types of Trade Barriers
Protective tariffs, import quotas, trade embargoes, and voluntary export restraints.
Benefits of Globalization for Poor Countries
Relieving poverty around the world, increase HDI scores, increasing wage, and growth of developing countries.
How does specialization lead to economic interdependence?
Self-sufficiency is not necessarily economically productive.
Extreme Poverty
A condition in which people are too poor to meet basic survival needs, including food, shelter, and clothing.
Least Developed Country
A country that suffers from severe poverty and low standards of living.
Money
A generally accepted medium of exchange that can be traded for goods and services or used to pay debts. Money is critical in a market economy.
Developing Country
A low- to medium- income country in which most people have less access to goods and services than the average person in a developed country.
Financing the U.S Trade Deficit
Borrowing dollars from foreign lenders and by selling U.S. assets to foreign investors. Can also purchase stock in American companies or buy U.S assets like land and office buildings.
How did framers of the Constitution encourage the growth of a national market?
By giving Congress alone the power to regulate interstate commerce. Commerce Clause.
Benefits of Globalization for Local Culture
Customs/traditions can influence the developed world and businesses get a change to sell products to a bigger market.
Comparative Advantage Country Differences
Differences in climate, differences in factors of production (CELL), and differences in technology.
When dollar is weak...
Discourages imports but makes U.S exports relatively cheap for other countries (boost U.S. exports)
Costs of Globalization for the Environment
Environmentalists worry that globalization may encourage multinational corporations to move their operations to "pollution havens". Also there might be link to climate change.
Benefits of Globalization for U.S Consumers
Gives access to an enormous variety of goods/services, low prices, which improves standard of living. Also increases competition among producers. Also enhances the flow of ideas around the world.
Exports
Goods and services produced domestically and sold in other countries.
Imports
Goods and services produced in other countries and sold domestically.
Trade Embargo
Imposes a ban on trade with a country or group of countries, usually for political reasons.
Effects of Specialization
Improves productivity and encourages trade
Who are the main players in the Globalization Debate?
International organizations (WTO, UN, World Bank), International Monetary Fund, Nongovernmental Organizations, Multinational Corporations, and Sovereign Nation-States.
Specialization Improves Productivity
It also underscores the great efficiency and productivity that result when workers divide the individual task that make up a job and become expert at specific tasks.
