B USINESS IN A GLOBAL ECONOMY Personal Business Ch. 10

T HE G LOBAL E CONOMY The interconnected economies of the national of the world. We are all part of a global economy. It is fueled by international trade The exchange of goods and services between nations.

T HE G LOBAL E CONOMY Countries satisfy their citizen’s wants and needs by buying them in the global market. A multinational corporation is a company that does business in many countries and has facilities and offices around the world. Examples……

I NTERNATIONAL T RADE Trade is the activity of buying and selling goods and services in domestic or international markets. Allows countries to meet their individual wants and needs and help their own economy.

T YPES OF T RADE Domestic Trade Production, purchase, and sale of goods and services within a country World Trade Exchange of goods and services across international boundaries Most countries can’t produce a desired good because they don’t have the raw materials or climate so they buy from other countries One country may produce better products at cheaper prices

T RADE World trades has been increasing considerably What has enabled more world trade? Better Transportation Telecommunications Decrease in trade barriers

I MPORTS AND E XPORTS Imports Goods and services that one country buys from another country US buys pepper from India, Bananas from Honduras, Coffee from Colombia, and Automobiles from Japan Exports Goods and services that one country sells to another country US sells wheat and airplanes to Australia and Russia One country’s exports are another country’s imports

B ALANCE OF T RADE Difference in value between a country’s imports 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

I MPORTS AND E XPORTS

S PECIALIZATION Countries specialize in producing certain goods and services Builds and sustains a market economy Many take advantage of their specialties by trading them with other countries in the global marketplace

S PECIALIZATION Businesses sell what they produce best so they can buy the products they need from other countries. Comparative Advantage The ability of a country or company to produce a particular good more efficiently than another country or company US, Japan, and Germany producing automobiles

C URRENCY (M ONEY ) Different countries use different currencies. To trade with another country, businesses must convert their money into that nation’s currency They change their money on the foreign exchange market Banks where different currencies are exchanged

E XCHANGE R ATE Each country’s currency has a value that is different from other countries Exchange Rate: Price at which one currency can buy another currency Exchange rates change from day to day

P RICES When the value of a country’s currency goes up, compared to another country’s, it appreciates They can buy more of the other country’s products When a country’s currency goes down, it depreciates or goes down in value

P ROTECTIONISM AND F REE T RADE Global competition leads to trade disputes between other countries Occurs when nations put barriers on trading items When trade disputes occur there is always talk about whether there should be limits on trade or if it should be unrestricted

P ROTECTIONISM Practice of the government putting limits on foreign trade to protect businesses at home Companies want to sell what they produce at home and keep foreign competitors out

P ROTECTIONISM R EASONS TO RESTRICT TRADE Foreign competition can lower the demand for products made at home Companies at home need to be protected from foreign competition Industries that make products related to national defense need to be protected Cheap labor in other countries can lower wages at home A country can become too dependent on another country Other countries may not have the same environmental or human rights standards

T RADE B ARRIERS Developed to limit competition from other countries US and Brazil both produce sugar but Brazil can sell it for less than the US The government can protect the US sugar producers in different ways: Tariff Quota Embargo

T ARIFF Tax placed on imports to increase their price in the domestic market The government would place a tax on the sugar from Brazil to make it more expensive than American sugar

Q UOTA A limit placed on the quantities of a product that can be imported If the US only allowed a small amount of Brazilian sugar into the country, then most Americans would buy American sugar

E MBARGO A ban on the import or export of a product They are rare Used against another country for political or military reasons

F REE T RADE Economic or foreign policy often decide which countries trade with each other Occurs when there are few or no limits on trade between countries Supporters of free trade think all countries should compete anywhere in the world without restriction

B ENEFITS OF F REE T RADE Opens up new markets in other countries Creates new jobs, especially related to global trade Competition forces businesses to bee more efficient and productive Consumers have more choices Promotes cultural understanding and encourages cooperation Helps countries raise their standard of living

T RADE A LLIANCES To reduce limits on trade, nations form trade alliances Several countries merge their economies into one huge market NAFTA: North American Free Trade Agreement Combine US, Canada, and Mexico