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The question of how to organize economic institutions is typically not a black-or-white choice between all market or all government, but instead involves a balancing act over the appropriate combination of market freedom and government rules.

Globalization

The image is a photograph of a cargo ship transporting goods.
Cargo ships are one mode of transportation for shipping goods in the global economy. (Credit: Raul Valdez/Flickr Creative Commons)

The rise of globalization

Recent decades have seen a trend toward globalization    , which is the expanding cultural, political, and economic connections between people around the world. One measure of this is the increased buying and selling of goods, services, and assets across national borders—in other words, international trade and financial capital flows.

Globalization has occurred for a number of reasons. Improvements in shipping, as illustrated by the container ship shown in [link] , and air cargo have driven down transportation costs. Innovations in computing and telecommunications have made it easier and cheaper to manage long-distance economic connections of production and sales. Many valuable products and services in the modern economy can take the form of information—for example: computer software; financial advice; travel planning; music, books and movies; and blueprints for designing a building. These products and many others can be transported over telephones and computer networks at ever-lower costs. Finally, international agreements and treaties between countries have encouraged greater trade.

[link] presents one measure of globalization. It shows the percentage of domestic economic production that was exported for a selection of countries from 2010 to 2013, according to an entity known as The World Bank. Exports are the goods and services that are produced domestically and sold abroad. Imports are the goods and services that are produced abroad and then sold domestically. The size of total production in an economy is measured by the gross domestic product (GDP)    . Thus, the ratio of exports divided by GDP measures what share of a country’s total economic production is sold in other countries.

(Source: http://databank.worldbank.org/data/)
The extent of globalization (exports/gdp)
Country 2010 2011 2012 2013
Higher Income Countries
United States 12.4 13.6 13.6 13.5
Belgium 76.2 81.4 82.2 82.8
Canada 29.1 30.7 30.0 30.1
France 26.0 27.8 28.1 28.3
Middle Income Countries
Brazil 10.9 11.9 12.6 12.6
Mexico 29.9 31.2 32.6 31.7
South Korea 49.4 55.7 56.3 53.9
Lower Income Countries
Chad 36.8 38.9 36.9 32.2
China 29.4 28.5 27.3 26.4
India 22.0 23.9 24.0 24.8
Nigeria 25.3 31.3 31.4 18.0

In recent decades, the export/GDP ratio has generally risen, both worldwide and for the U.S. economy. Interestingly, the share of U.S. exports in proportion to the U.S. economy is well below the global average, in part because large economies like the United States can contain more of the division of labor inside their national borders. However, smaller economies like Belgium, Korea, and Canada need to trade across their borders with other countries to take full advantage of division of labor, specialization, and economies of scale. In this sense, the enormous U.S. economy is less affected by globalization than most other countries.

Questions & Answers

the various economic systems;
King Reply
what is consumer surplus
Amara Reply
Consumer Surplus is the difference between the price that consumers pay and the price that they are willing to pay. On a supply and demand curve, it is the area between the equilibrium price and the demand curve.
stedford
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Neolskae
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economic is a social science that studies human behaviour as a relationship between
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economics is the study of how people allocate their limited resources to provide for their wants
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Richard Reply
When the price of a good rise rapidly
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Favour Reply
what causes demand curve shifted to the left?
Richard
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John Reply
demand is amount of goods and services that a consumer is willing and able to purchase at a giving price over a period of time
roy
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Melat
demand is the willingness and ability to demand a particular product at a particular price and at a particular time
Rahul
demand is an ability and willingness of a consumer to purchase a particular commodity at a given price over a period of time
adebiyi
What does the 45-degree line show
Hassan Reply
the supply line
Neolskae
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roy Reply
no, only the working age
roy
Please briefly explain the relationship between the scarcity, choice and opportunity costs
Thandokazi Reply
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Michael Reply
yes
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price effect
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Hez
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jamilu Reply
What's are the types of elasticity
jamilu
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Shiyghan Reply
consumer consumption will reduce, as well as demand will fall.
kuntu
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Foday Reply
expenditure on capital goods by the business is known as?
rhandzu Reply
ok
Shiyghan
capital expenditure
Zulkiful

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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