Chapter 10: Business in a Global Economy
The Global Marketplace
The Global Economy
- The global economy is the interconnected economies of the nations of the world.
- We live in a global economy fueled by international trade.
- International trade involves the exchange of goods and services between nations.
- The development of the global economy is often referred to as globalization.
- A multinational corporation is a company that does business in many countries and has facilities and offices around the world.
- Sony is a multinational corporation.
International Trade
- Trade has several meanings.
- This chapter looks at trade as the activity of buying and selling goods and services in domestic or international markets.
- Domestic trade is the production, purchase, and sale of goods and services within a country.
- World trade is the exchange of goods and services across international boundaries.
- Imports are goods and services that one country buys from another country.
- Exports are goods and services that one country sells to another country.
- Countries can also invest in other nations by opening businesses there.
- When a country exports more than it imports, it has a trade surplus.
- When a country imports more than it exports, it has a trade deficit.
- A balance of trade is the difference in value between a country’s imports and exports over a period of time.
- A country can have a trade deficit with one country and a trade surplus with another.
- To specialize means to focus on a particular activity, area, or product.
- Specialization builds and sustains a market economy.
- A comparative advantage is the ability of a country or company to produce a particular good more efficiently than another country or company.
- Countries have to pay for products and services with currency.
- To trade with another country, businesses and countries must convert their money into that nation’s currency.
- To do that, their currency is exchanged on the foreign exchange market
- The foreign exchange market is mostly made up of banks where different currencies are exchanged.
- Each country’s currency has a value that is different from those of other countries.
- The price at which one currency can buy another currency is called the exchange rate.
- Companies follow the change in exchange rates to find the best prices for products
Global Competition
Protectionism and Free Trade
- Protectionism is the practice of the government putting limits on foreign trade to protect businesses at home.
- Reasons to restrict trade include the following:
- Foreign competition can lower the demand for products made at home.
- Companies at home need to be protected from unfair foreign competition.
- Industries that make products related to national defense (such as satellites, aircraft, and weapons) need to be protected.
- The use of cheap labor in other countries can lower wages or threaten jobs at home.
- A country can become too dependent on another country for important products such as oil, steel, or grain.
- Other countries might not have the same environmental or human rights standards.
- To limit competition from other countries, governments develop trade barriers
- A tariff is a tax placed on imports to increase their price in the domestic market.
- A quota is a limit placed on the quantities of a product that can be imported.
- An embargo is a ban on the import or export of a product.
- Economic or foreign policy often determines which countries trade with each other.
- Free trade occurs when there are few or no limits on trade between countries.
- To reduce limits on trade, nations form trade alliances
- In a trade alliance, several countries merge their economies into one huge market.
- Some of the major trade alliances in the world today are:
- North American Free Trade Agreement (NAFTA)
- European Union (EU)
- Association of Southeast Asian Nations (ASEAN)
