3.1: Comparative Advantage

Globalization =

Economic ($) Interdependence

Causes of Globalization

The end of the Cold War (1989)---countries weren’t fighting over Socialism and Capitalism as much, Technology advanced, and Governments changed their policies to allow more trade and more options.

Effects of Globalization

• Individuals, businesses, and governments are affected by events elsewhere in the world. 

• Globalization also means the spread of capitalism. 

Benefits of Globalization

• Increased communication

• Increased trade (more options and cheaper options)

• Increased standard of living (higher incomes and longer life expectancy.)

Costs of Globalization

• Increased income inequity )

• Loss of jobs in the United States

• More power to big companies

Specialization

Countries focus on a product or set of products that they produce better than everyone else (Trade to acquire other goods).

Absolute Advantage

Ability of a country to produce a good better than any other country

Comparative Advantage

Good or service the country produces at the lowest possible cost RELATIVE to its other goods

Per Unit Opportunity Cost

Opportunity Cost/ Units Gained

Countries should trade if they have a

relatively lower opportunity cost.