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Chapter 1
THE INTERNATIONAL ECONOMY AND GLOBALIZATION
CHAPTER OVERVIEW
This chapter introduces students to the international economy and to globalization. The first part of the
chapter emphasizes the high degree of economic interdependence that characterizes today’s economies.
Economic interdependence includes international trade and international finance.
© 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except
BRIEF ANSWERS TO STUDY QUESTIONS
1. Interdependence among today's economies reflects the historical evolution of the world's economic
and political order. Since World War II, Europe and Japan have reindustrialized. What is more, the
2. Proponents of an open trading system maintain that free trade leads to lower prices, the development
of more efficient production methods, and a greater range of consumption choices. Free trade permits
resources to move from their lowest productivity to their highest productivity. Critics of an open trading
3. For the United States, growing economic interdependence has resulted in exports and imports
increasing as a share of national output. Profits of domestic firms and wages of domestic workers are
4. The volume of international trade is governed by factors including the level of domestic economic
5. The chapter describes three fallacies of international trade:
a. Trade is a zero sum activity
6. International competitiveness refers to the extent to which the goods of a firm or industry can compete
in the marketplace; this competitiveness depends on the relative prices and qualities of products. No
nation can be competitive in, and thus be a net exporter of, everything. Because a nation’s stock of
7. Researchers have found that global competitiveness is a bit like sports. You get better by playing
against folks who are better than you. This means companies that are exposed to intense global
8. International trade benefits most workers, especially those in exporting industries. In addition to
providing them with jobs and income, it allows them to shop for consumption goods that are the
9. Among the challenges confronting the international trading system are maintaining fair standards for
labor and promoting environmental quality.
