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Chapter Menu Chapter Introduction Section 1:Section 1:International Trade Section 2:Section 2:Economic Systems Section 3:Section 3:Economies in Transition Visual Summary

Chapter Intro 1 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.

Chapter Intro 2 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.

Chapter Intro 2 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.

Chapter Intro 2 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.

Chapter Preview-End

Section 1-Main Idea Guide to Reading Big Idea The exchange of goods and services helps create economic interdependence among peoples in different places and different countries.

Section 1-Key Terms Guide to Reading Content Vocabulary export import comparative advantagecomparative advantage tariff quota free trade exchange rate balance of trade trade surplus trade deficit

Section 1-Key Terms Guide to Reading consequently eventually flexible Academic Vocabulary

A.A B.B Section 1-Polling Question Should Americans buy cheaper products made in other countries, even if it means fewer jobs for American workers? A.Yes B.No

Section 1 Why Nations Trade Nations trade with one another to obtain goods and services they themselves cannot produce efficiently.

Section 1 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 moreexportedimported –Example: Imports industrial diamonds, exports commercial planes

Section 1 Why Nations Trade (cont.) Comparative advantages allow nations to specializeComparative advantages –Example: Saudi Arabia—oil –May be based on factors of production

Section 1 Why Nations Trade (cont.) International trade creates jobs.

A.A B.B C.C Section 1 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. B.It would get worse. C.It would stay the same.

Section 1 Restrictions and Integration Countries sometimes try to protect their economies by setting up trade barriers.

Section 1 Restrictions and Integration (cont.) Governments use trade barriers to protect their economies. Two most common trade barriers: –Tariff—customs duty makes import more expensiveTariff –Quota—limits amount of product importedQuota Imports and Exports, Selected Nations

Section 1 Restrictions and Integration (cont.) Most countries prefer free trade or reduced trade barriers.free trade

Section 1 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

Section 1 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)

A.A B.B Section 1 Should the U.S. use trade barriers to keep imports from flooding our market? A.Yes B.No

Section 1 Financing Trade A nation’s balance of trade can be either a surplus or a deficit.

Section 1 Financing Trade (cont.) A nation’s balance of trade is either surplus or a deficit.

Section 1 Financing Trade (cont.) Exchange rate—value of a nation’s currency in relation to another currencyExchange rate –Most countries use flexible exchange rate system –Currency’s value can change daily –Affects nation’s balance of tradebalance of trade

Section 1 Financing Trade (cont.) Trade surplus—value of exports exceeds value of importsTrade surplus Trade deficit—value of imports exceeds value of exportsTrade deficit –Tends to devalue currency

Section 1 Financing Trade (cont.) Deficits correct themselves through price system

A.A B.B Section 1 Do you agree that a flexible exchange rate generally benefits a nation’s balance of trade? A.Agree B.Disagree

Section 1-End

Section 2-Main Idea Guide to Reading Big Idea An economic system is the way a society organizes the production and consumption of goods and services.

Section 2-Key Terms Guide to Reading Content Vocabulary market economymarket economy per capita GDPper capita GDP command economycommand economy socialism communism mixed economy Academic Vocabulary intervene exploit

A.A B.B Section 2-Polling Question Do you think the United States’ market economy is the best economic system? A.Yes B.No

Section 2 Market Economies Market economies are characterized by individual freedom, competition, and less government control.

Section 2 Market Economies (cont.) In a market economy, supply and demand determine how decisions are made.market economy

Section 2 Market Economies (cont.) Market economy: –Private citizens own factors of production –Supply and demand set prices, production –Decentralized

Section 2 Market Economies (cont.) –Pure form does not exist –Most of world’s largest economies –Higher per capita gross domestic product (GDP)per capita gross domestic product (GDP)

Section 2 Market Economies (cont.) Government intervenes to –Prevent monopolies –Punish lawbreakers –Influence externalities

A.A B.B Section 2 Do you agree that a pure market economy could provide all the services needed by citizens? A.Agree B.Disagree

Section 2 Command Economies In command economies, the government tells producers what to do.

Section 2 Command Economies (cont.) In a command economy, economic decisions are made by the government.command economy Also called controlled economy Socialism: society should control production, distribute wealth equallySocialism

Section 2 Command Economies (cont.) Communism: one class, holding all property in commonCommunism –Karl Marx advocated violent revolution –No need for a government

Section 2 Command Economies (cont.) Command Economy: –Government makes three basic allocation decisions: What to produce How to produce For whom to produce

Section 2 Command Economies (cont.) –Rely on planning agencies –Economy grows more slowly –Lower per capita GDP Per Capita GDP, Selected Nations

A.A B.B Section 2 Do you think it is a good idea that a government decides all economic decisions for a country? A.Yes B.No

Section 2 Mixed Economies Today the American economy and others like it are described as mixed economies.

Section 2 Mixed Economies (cont.) Many modern economies combine features of market and command economies to form a mixed economy.mixed economy

Section 2 Mixed Economies (cont.) Mixed Economy: –Combines elements of market and command economies –Most world economies –Individual freedom with some government intervention

A.A B.B C.C D.D Section 2 Who do you think can best make decisions regarding resource allocation? A.Producers B.Governments C.Consumers D.a combination

Section 2-End

Section 3-Main Idea Guide to Reading Big Idea An economic system is the way a society organizes the production and consumption of goods and services.

Section 3-Key Terms Guide to Reading Content Vocabulary developing country traditional economy Academic Vocabulary collapse nevertheless

A.A B.B Section 3-Polling Question Do you think Russia and China are better off now that they have more open economies? A.Yes B.No

Section 3 Changing Economies Russia and China are making the difficult transition from command to market economies.

Section 3 Changing Economies (cont.) Russia and China are moving away from command economies toward market economies. Comparing Economies: Russia, China, and the U.S.

Section 3 Changing Economies (cont.) Russia –Soviet Union collapsed in 1991 –Soviet production inefficient –State-owned factories transferred to private owners –Stock markets created

Section 3 Changing Economies (cont.) –Difficult transition –Economy showing signs of improvement

Section 3 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

A.A B.B Section 3 Which country do you think is adapting better to a market-based economy? A.China B.Russia

Section 3 Developing Countries Developing countries face many problems as they try to create market economies.

Section 3 Developing Countries (cont.) Developing countries are those whose average per capita incomes are far below those of industrialized countries.Developing countries

Section 3 Developing Countries (cont.) Traditional economy –Decisions based on habit –People Often follow same career as family

Section 3 Developing Countries (cont.) Obstacles to development: –High population growth rate –Geography, natural resources –War, debt, corruption Social Statistics Comparison, Selected Regions

Section 3 Developing Countries (cont.) Help for developing countries –International Monetary Fund (IMF) –International Bank for Reconstruction and Development (World Bank) –Debt forgiveness

A.A B.B C.C D.D Section 3 What is the worst by-product of war in a developing nation? A.Destroyed roads and buildings B.Hidden land mines C.Depressed economy D.Fewer workers

Section 3-End

VS 1 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.

VS 2 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.

VS 3 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.

VS 4 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.

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DFS Trans 2 The United States has a market economy. Individuals choose which goods to produce and the prices for which the goods will sell.

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Vocab1 export to sell goods to other countries; or a good produced in one country, then sold to another

Vocab2 import a good purchased from one country by another

Vocab3 comparative advantage the ability of a country to produce a good at a lower opportunity cost than another country can

Vocab4 tariff a customs duty; a tax on an imported good

Vocab5 quota a limit on the amount of foreign goods imported into a country

Vocab6 free trade policy of reduced trade barriers

Vocab7 exchange rate the price of one nation’s currency in terms of another nation’s currency

Vocab8 balance of trade the difference between the value of a nation’s exports and its imports

Vocab9 trade surplus situation in which the value of the products exported by a country exceeds the value of its imports

Vocab10 trade deficit situation in which the value of the products imported by a country exceeds the value of its exports

Vocab11 consequently as a result

Vocab12 eventually in the end

Vocab13 flexible to adapt easily

Vocab14 market economy system in which individuals own the factors of production and make economic decisions through free interaction

Vocab15 per capita GDP Gross Domestic Product per person

Vocab16 command economy an economic system in which the major economic decisions are made by the central government

Vocab17 socialism economic system in which government owns some factors of production and distributes the products and wages

Vocab18 communism economic system in which the central government directs all major economic decisions

Vocab19 mixed economy system combining characteristics of more than one type of economy

Vocab20 intervene to come between

Vocab21 exploit to take advantage of

Vocab22 developing country a country whose average per capita income is only a fraction of that in more industrialized countries

Vocab23 traditional economy an economic system in which the decisions of what, how, and for whom to produce are based on custom or habit

Vocab24 collapse to fall apart

Vocab25 nevertheless even so

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