Economics Principles and Practices © 2012 Georgia

Chapter 18: Global Economic Challenges

Chapter Overviews

Section 1: Globalization: Characteristics and Trends

Globalization is the movement toward a more integrated and independent world economy, which means people can buy products from anywhere in the world. Some examples of global products and markets are McDonalds, Pizza Hut, and Pepsi. One major issue with global production is outsourcing, which is hiring outside firms to produce products for a lower cost. In order to make globalization easier, General Agreement on Tariffs and Trade (GATT) was established and entails an international agreement signed in 1947 between 23 countries to extend tariff concessions and do away with import quotas. With continued globalization, two trends stand out. The first is the growing economic interdependence among nations. The second is growing regional economic integration around the world. As a result, many countries are attempting to integrate their economies among regions.

Section 2: Global Problems and Economic Incentives

Even though the population is decreasing, the global demand for resources is increasing. Thomas Malthus, writing in 1798, was the first economist to raise the specter of the world's population being driven to a subsistence level as a result of population growing faster than the resources able to support it. Malthus may not have foreseen the enormous advances in technology that have benefited the industrialized nations, but for many parts of the world, his predictions are a stark reality. There are two types of resources: renewable and nonrenewable. Renewable resources are natural resources that can be replenished, and there are four main types: hydropower, biomass, solar power, and wind generated electricity. Nonrenewable resources are resources that cannot be replenished after they have been used. Oil, natural gas, coal, and nuclear energy are all examples of nonrenewable resources. As resources become scarce, their prices rise, causing people to use them more carefully. Ways are being developed in order to assist with the lack of resources. The incentives provided by the price system are one of the most effective forces in the economy today. Pollution is a serious problem and can be controlled with legislated standards, or by using the incentives supplied by the price system. Pollution taxes and pollution permits are currently being used to complement legislated standards. These approaches are more flexible in that they give firms the opportunity to reduce pollution on their own.

Section 3: Applying the Economic Way of Thinking

Economics serves as a generalized framework for decision making. Economics offers the tools of analysis and methodologies to help people cope with the future. The concepts of opportunity cost and cost-benefit analysis are key components of the process. Capitalism has emerged as the dominant type of economic organization in the world today. As a result, markets and the forces of supply and demand are more important than ever as they work to establish the prices that serve as signals to both producers and consumers. Markets also have the flexibility to cope with changes and unknown events that are likely to occur in the future.

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