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Contents

Preface ........................................................................................ xv

CHAPTER 1

The International Economy and Globalization ....................................... 1

Globalization of Economic Activity .................. Waves of Globalization ................................. First Wave of Globalization: 18701914 ......... Second Wave of Globalization: 19451980 ...... Latest Wave of Globalization ...................... The United States as an Open Economy ........... Trade Patterns .........................................

2 3 4 4 5 7 7

Dell Sells Factories in Effort to Slash Costs .... 17 Common Fallacies of International Trade ........ 18 Does Free Trade Apply to Cigarettes? ............. 19

Is International Trade an Opportunity or a Threat to Workers? .............................. 20

Backlash Against Globalization ..................... 22 Terrorism Jolts the Global Economy .............. 24

Labor and Capital ................................... 10 Why Is Globalization Important? .................. 11 The Global Recession of 20072009 ........... 12

Globalization: Increased Competition From Abroad ................................................. 16

Bicycle Imports Force Schwinn to Downshift .. 16

Competition in the World Steel Industry ................................................ 25

The Plan of this Text .................................. 26 Summary ................................................. 26 Key Concepts & Terms ............................... 27 Study Questions ........................................ 27

PART 1: International Trade Relations

29

CHAPTER 2 Foundations of Modern Trade Theory: Comparative Advantage ............ 31

Historical Development of Modern Trade Theory ............................................ 31

The Mercantilists .................................... 31 Why Nations Trade: Absolute Advantage ...... 32

Production Gains from Specialization ........... 39 Consumption Gains from Trade .................. 40 Distributing the Gains from Trade .............. 42 Equilibrium Terms of Trade ...................... 43

Why Nations Trade: Comparative Advantage ............................................. 34

Babe Ruth and the Principle of Comparative Advantage ........................... 44

David Ricardo ......................................... 36 Production Possibilities Schedules .................. 37 Trading Under Constant-Cost Conditions ....... 38

Basis for Trade and Direction of Trade ........ 38

Terms-of-Trade Estimates .......................... 44 Dynamic Gains From Trade ......................... 45

How Global Competition Led to Productivity Gains for U.S. Iron Ore Workers ................. 46

v

Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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