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.
The chapter discusses the nature of international competitiveness—for firms, industries, and nations. It is noted that
exposure to global competition tends to improve the efficiency of firms. Finally, the chapter introduces the The
potential effects that international trade has on workers is introduced.
The chapter concludes with a look at the backlash against globalization that has emerged in recent years and
summarizes the advantages and disadvantages of globalization.
After completing the chapter, students should be able to:
BRIEF ANSWERS TO STUDY QUESTIONS
1. Interdependence among today’s economies reflects the historical evolution of the world’s economic and
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multinational corporations, has contributed to closer economic and political linkages.
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
3. For the United States, growing economic interdependence has resulted in exports and imports increasing as a
4. The volume of international trade is governed by factors including the level of domestic economic activity
(e.g., prosperity versus recession) and restrictions imposed by countries on their imports.
5. The chapter describes three fallacies of international trade:
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a. Trade is a zero sum activity
b. Imports reduce employment and act as a drag on the economy
c. Tariffs and quotas will save jobs and promote a higher level of employment
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
7. Researchers have found that global competitiveness is a bit like sports. You get better by playing against
8. International trade benefits most workers, especially those in exporting industries. In addition to providing
9. Among the challenges confronting the international trading system are maintaining fair standards for labor and
promoting environmental quality.
10. The threat of international terrorism tends to slow the degree of globalization and also make it become
costlier. With terrorism, companies must pay more to insure and provide security for overseas staff and