1
Introduction to Business
Chapter 3: Competing in the Global Marketplace
3.1 Global Trade in the United States
International trade improves relations with friends and allies, eases tensions among nations,
helps bolster economies, raises people’s standard of living, and improves the quality of life. The
United States is still the largest importer and exporter in the world. We export a fifth of our
industrial production and about a third of our farm crops.
Two concepts important to global trade are the balance of trade (the difference in value
between a country’s exports and its imports over some period) and the balance of payments
(the difference between a country’s total payments to other countries and its total receipts
from other countries). The United States now has both a negative balance of trade and a
negative balance of payments. Another important concept is the exchange rate, which is the
price of one country’s currency in terms of another country’s currency. Currencies float up and
down based upon the supply of and demand for each currency. Sometimes a government steps
in and devalues its currency relative to the currencies of other countries.
3.1 Review Questions
1. What does it mean to have a global vision?
2. What does a global vision enable managers to do?
3. How does international business impact the U.S. economy?
4. Why should global trade be concerned with terrorism?
5. What are key measures of international trade?
a. What is the difference between exports and imports?
b. Why is it important to know these differences?
c. What is it called when there is a difference between the value of a country’s
exports and imports during a specific time?
i. Explain the difference between trade surplus and trade deficit.
6. What does a country have to take into consideration when determining their balance of
payments?
a. Significance of a country’s balance of payments?
7. Why is it important to know the exchange rate of one country’s currency in relation to
another country’s currency?
a. How do appreciation and depreciation affect the prices of a country’s goods?
b. What is a floating exchange rate?
i. How do countries benefit from this?
c. What is devaluation?
For more free, peer-reviewed, openly licensed resources visit OpenStax.org.
, 2
i. Why would a country use devaluation?
8. What happens when a country’s currency is undervalued?
3.2 Why Nations Trade
Nations trade because they gain by doing so. The principle of comparative advantage states
that each country should specialize in the goods it can produce most readily and cheaply and
trade them for those that other countries can produce most readily and cheaply. The result is
more goods at lower prices than if each country produced by itself everything it needed. Free
trade allows trade among nations without government restrictions.
3.2 Review Questions
1. Define the following terms
a. Advantage
b. Absolute advantage
c. Principle of comparative advantage
2. Why is trade between nations beneficial?
3. How does the principle of comparative advantage benefit countries?
4. What is the difference between free trade and protectionism?
5. Why do people fear trade?
6. What can result from too much trade?
7. What is outsourcing and how does it relate to trade?
8. What are some ways globalization is considered beneficial?
3.3 Barriers to Trade
The three major barriers to international trade are natural barriers, such as distance and
language; tariff barriers, or taxes on imported goods; and nontariff barriers. The nontariff
barriers to trade include import quotas, embargoes, buy-national regulations, and exchange
controls. The main argument against tariffs is that they discourage free trade and keep the
principle of comparative advantage from working efficiently. The main argument for using
tariffs is that they help protect domestic companies, industries, and workers.
3.3 Review Questions
1. What is the purpose of barriers to trade?
2. What types of barriers to international trade are there?
3. Provide an example of a natural barrier to trade.
4. What is a tariff, and why do countries impose tariffs?
5. What is the purpose of a protective tariff?
6. What are the arguments for and against tariffs?
For more free, peer-reviewed, openly licensed resources visit OpenStax.org.
Introduction to Business
Chapter 3: Competing in the Global Marketplace
3.1 Global Trade in the United States
International trade improves relations with friends and allies, eases tensions among nations,
helps bolster economies, raises people’s standard of living, and improves the quality of life. The
United States is still the largest importer and exporter in the world. We export a fifth of our
industrial production and about a third of our farm crops.
Two concepts important to global trade are the balance of trade (the difference in value
between a country’s exports and its imports over some period) and the balance of payments
(the difference between a country’s total payments to other countries and its total receipts
from other countries). The United States now has both a negative balance of trade and a
negative balance of payments. Another important concept is the exchange rate, which is the
price of one country’s currency in terms of another country’s currency. Currencies float up and
down based upon the supply of and demand for each currency. Sometimes a government steps
in and devalues its currency relative to the currencies of other countries.
3.1 Review Questions
1. What does it mean to have a global vision?
2. What does a global vision enable managers to do?
3. How does international business impact the U.S. economy?
4. Why should global trade be concerned with terrorism?
5. What are key measures of international trade?
a. What is the difference between exports and imports?
b. Why is it important to know these differences?
c. What is it called when there is a difference between the value of a country’s
exports and imports during a specific time?
i. Explain the difference between trade surplus and trade deficit.
6. What does a country have to take into consideration when determining their balance of
payments?
a. Significance of a country’s balance of payments?
7. Why is it important to know the exchange rate of one country’s currency in relation to
another country’s currency?
a. How do appreciation and depreciation affect the prices of a country’s goods?
b. What is a floating exchange rate?
i. How do countries benefit from this?
c. What is devaluation?
For more free, peer-reviewed, openly licensed resources visit OpenStax.org.
, 2
i. Why would a country use devaluation?
8. What happens when a country’s currency is undervalued?
3.2 Why Nations Trade
Nations trade because they gain by doing so. The principle of comparative advantage states
that each country should specialize in the goods it can produce most readily and cheaply and
trade them for those that other countries can produce most readily and cheaply. The result is
more goods at lower prices than if each country produced by itself everything it needed. Free
trade allows trade among nations without government restrictions.
3.2 Review Questions
1. Define the following terms
a. Advantage
b. Absolute advantage
c. Principle of comparative advantage
2. Why is trade between nations beneficial?
3. How does the principle of comparative advantage benefit countries?
4. What is the difference between free trade and protectionism?
5. Why do people fear trade?
6. What can result from too much trade?
7. What is outsourcing and how does it relate to trade?
8. What are some ways globalization is considered beneficial?
3.3 Barriers to Trade
The three major barriers to international trade are natural barriers, such as distance and
language; tariff barriers, or taxes on imported goods; and nontariff barriers. The nontariff
barriers to trade include import quotas, embargoes, buy-national regulations, and exchange
controls. The main argument against tariffs is that they discourage free trade and keep the
principle of comparative advantage from working efficiently. The main argument for using
tariffs is that they help protect domestic companies, industries, and workers.
3.3 Review Questions
1. What is the purpose of barriers to trade?
2. What types of barriers to international trade are there?
3. Provide an example of a natural barrier to trade.
4. What is a tariff, and why do countries impose tariffs?
5. What is the purpose of a protective tariff?
6. What are the arguments for and against tariffs?
For more free, peer-reviewed, openly licensed resources visit OpenStax.org.
