Transcript Chapter 5 The international economy

Chapter 5
The international economy
BY
Jon Weeks, JJ Rowe, Alex Millin
Types of economic systems
• Market- Decisions on production and consumption of
goods and services are based on voluntary exchange in
markets.
• Traditional- Relies on habit, custom, or ritual to decide
questions of production and consumption of goods and
services.
• Command- Central government makes all decisions on
production and consumption of all goods and services.
• Mixed- Combines free market with limited government
involvement.
Examples
• USA is a good example of a market economy.
• Traditional economies are rarely used now.
They are most common in third world
countries.
• Command economies are mostly located in
communist countries.
• Mixed economies are a mix of capitalist and
socialist ideals and is the most widely used
term to describe economies.
Economic interdependence and trade
• Closed and Open economies
• Closed economies don’t trade or interact
with other economies
• Open economies engage in trade with
other countries.
• Economic interdependence is when
countries rely on each other to trade for
goods and services which are not in their
own borders.
Protectionism and national security
• Protectionism is the implementation of
policies that are designed to protect
domestic industries by keeping foreign
competitors from selling their products
freely within one’s country.
• National security is implementing certain
goods to be made in your own country so
in case of war they will not be in scarcity.
Trade barriers
• A tariff is a tax put on imports to
encourage the buying of domestic
products
• A Quota is a certain amount of a good
which can be traded at one time
• Anti-dumping is the act of a producer to
exports its goods for cheaper than the
production cost to gain control over a
foreign market. Just like predatory pricing.
Balance of Payments
• An exchange rate is the price at which one
currency can be used to purchase another
• Fixed exchange rates are a price for
foreign currency is tied to the price of
currency in a stable nation. Like dollar and
euro.
• Floating Exchange rate is where the value
of exchange is determined by the supply
and demand mechanism.
Chapter Questions?
1. What are the 4 types of economic systems?
2. A _______ economy does not trade or interact
with other economies.
3. What is the implementation that are designed
to protect domestic industries by keeping
foreign competitors from selling their products
freely within one’s country?
4. A trade barrier which taxes imports.
5. The price at which one currency can be used
to purchase another is _________.