global trade activity

Posted : April 17, 2018
Last Updated : April 17, 2018

global trade activity

We can all work together in this global community. Learn how to define globalization, explain how global trade works, and describe scarcity and rationing.

Global Connections

We truly are a connected planet – and not just on social media. You’re probably wearing clothes from different countries. You may have electronics that were made in Japan or China. You may eat food that comes from Ecuador, Guatemala, or Chile. You also buy a lot of stuff that is made or grown in the US Some economic terms to understand include globalization, interdependence, and global trade.

Countries send resources and goods they produce to other countries (export) while, at the same time, buying resources and goods from other countries (import). If a country does not have the natural resources or materials – or the manufacturing ability – to produce something, trade is a good thing. Trade provides the money to buy, and import, other goods. Imports and exports are beneficial for all parties.

Getting Ahead

Having an advantage, especially related to global economics, refers to the ability of a country to produce something at a lower cost per unit (piece or item) than another country. Two examples of advantage are absolute advantage and comparative advantage. They both impact global trade and economics.

For example, if Country A can produce cell phones for a production cost of $400 each but Country B can produce cell phones for a production cost of $200 each, then Country B has the absolute advantage. They are the best at making cell phones and will make more profit.

When a country has a comparative advantage, it is able to produce a product at a lower cost than another country. So, absolute advantage is related to being more cost effective at producing something, but comparative advantage is related to being more efficient at production.

For example, if Country A can produce 1,000 denim jeans and 100 pairs of shoes per week, and Country B can produce 100 denim jeans and 1,000 pairs of shoes per week, both countries have the ability to produce jeans and shoes. However, Country A has a comparative advantage in jeans, while Country B has a comparative advantage in shoes. So, Country A could just make jeans – and make more of them. Country B could just make shoes – and make more of them. Both countries would then benefit by trading jeans for shoes and get more of the items than they could make themselves.

The Impact of Scarcity

Scarcity occurs when there is greater demand for something than what is actually available. A good example is clean drinking water. There are many populations around the world that struggle with water scarcity. In fact, according to the World Health Organization, four out of every ten people live where water is scarce or unsafe. The lack of water kills more people around the world than AIDS, malaria, and all wars combined.

As a global community, we have the ability to work together to improve the management of resources – like providing access to clean drinking water for more people. In the area of water scarcity, such efforts have included protection of the environment, more equitable distribution of water, and rationing.

Rationing is a process to control the amount of goods or services being used. Sometimes this happens as the result of a natural disaster that leads to scarcity. For example, after Superstorm Sandy in 2012, some areas of New Jersey rationed gasoline because some fuel stations couldn’t get any delivered and other stations had no electricity to pump it.

At other times, if the government fears there may be a shortage of something, they may ration it. For example, in some western US states where rainfall totals are often well below normal, water rationing may be necessary in order to limit the amount of water used. Often this means you can’t wash a car, water a lawn, or use an excessive amount of water without financial penalties.

The World in Your House

As a result of the chain of production, as well as all the imports and exports that happen around the world, we use a lot of products from different countries. Most of us don’t really stop to consider where all this stuff comes from. It’s time to take a look around and see the world represented in the things you own.

Take a look at some of the things you have in your home – food, clothing, electronics, shoes, and other items. Look around your house and in your room. Check out different food items in the kitchen. Think about where all the different things come from.

Final Thought

Becoming aware of global activity will help you develop an awareness of how goods and services, imports and exports, and different economic systems work around the world.

Source: Ramsey Solutions

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