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Economics Dr.

Katie Sauer

Chapter 12 Reading Guide: Trade and Globalization I. Introduction A modern economy is built on ___________________________. We pay people to do or make things that we cant do ourselves. Examples of things you personally pay for that you cant do yourself: We pay people to do or make things that we choose not to do for ourselves. Examples of things you personally choose not to do and pay for instead. What would life be like if you had to be entirely self-sufficient?

When a good or service originates in a foreign country, it crosses a political boundary not an economic one. What does Paul Krugman have to say about the effect of globalization?

The world is growing more economically interdependent. World exports as a share of GDP have grown from _______% in 1950 to ______% today. US exports as a share of US GDP have grown from ______% in 1950 to ______% today. The bulk of the American economy consists of:

Even so, the economy is so huge that the US is one of the worlds largest exporters.

Nearly all economic theory and evidence suggests that the benefits of international trade far exceed the costs.

II. Trade Makes Us Richer Trade is one of the ____________________________ ideas in economics but also one of the _______________________________________.

Abraham Lincoln once said It seems to me that if we buy the rails from England, then weve got the rails and theyve got the money. But if we build the rails here, weve got our rails and weve got our money. Explain the fallacy in his logic.

The reason we trade with other is because it:

Explain what Absolute Advantage is.

Explain what Comparative Advantage is.

Productivity is what makes us rich. Specialization is what makes us productive. Trade allows us to specialize. This is true at the individual level and national level.

III. Trade Creates Losers Trade, like technology, can destroy jobs. Explain.

In the long run, trade facilitates growth and a growing economy can absorb displaced workers. Between 1990 and 1997, ________________________ jobs were lost per year because of free trade with Mexico. Over the same time period, ______________________jobs were created per month. In the short run, some workers are displaced. They are often worse off in the short run and long run. Explain. 2

Given that trade is good for the economy as a whole but harmful to those who lose jobs, what can be done to soften the blow?

Explain how US trade policy is becoming more protectionist.

IV. Protectionism saves jobs in the short run and slows economic growth in the long run What are the benefits of protectionism (i.e. trade barriers)?

What are the costs of protectionism (i.e. trade barriers)?

Short of using physical force, when American wants to punish a nation, what does it do?

Protectionism is essentially imposing trade sanctions on our own economy. V. Trade lowers the cost of goods for consumers, which is the same as raising their incomes Trade barriers act like a ________. Explain.

Lowering trade barriers has the same impact on consumers as ___________________________. Between 1948 and 1995 trade barriers fell from ______% to ______%.

VI. Trade is good for poor countries, too Explain how zero-sum thinking is incorrect when it comes to gains from trade.

Anti-globalization protestors disrupted the WTO meetings in Seattle. What did the developing nations think of the trade talks being disrupted?

The current round of global trade negotiations, the Doha Round, has stalled because:

Benefits of Trade for poor countries 1. Access to: African Growth and Opportunity Act example:

2. Trade paves the way for: Explain.

Bangladeshi garment industry example:

Asian tigers example:

China example:

The effects of globalization A study of 34 countries found that the nations that were fastest globalizing had economic growth rates that were _____% to ______% higher than less globalized nations. Globalized nations also enjoyed greater ______________________________ and had higher scores on the _________________________________. About ___________billion people escaped poverty. However, higher globalization was also associated with some problems: 4

VII. Trade is Based on Voluntary Exchange Individuals do things that:

The threat of cultural homogenization is a common knock against globalization. Give some examples of cultural homogenization from globalization.

Explain how the building or continued existence of an American fast-food restaurant in a foreign nation is a local issue in that nation, not a global issue.

Explain how the cultural homogenization argument might be incorrect.

Explain how the same principles of voluntary exchange and local preferences apply when it comes to sweatshops.

VIII. The Comparative Advantage of workers in poor countries is cheap labor Why are workers in poor countries paid so little?

Sweatshops do not cause low wages in poor countries, rather:

Explain how the view of sweatshop differs for people across Asia and people from the West.

Explain how boycotting sweatshops might make things worse.

IX. Preferences change with income By global standards, what does it mean to be poor?

What is one of the worlds most pressing environmental problems?

According to economists, should poor countries be held to the same environmental standards as rich nations? Explain.

Explain how economic development is not inherently bad for the environment.

Explain how a race to the bottom hasnt materialized.

What are some ways to combat climate change?

___________________________________________________________________________________ In your own words, summarize the main points of this chapter.