Unit 27

Before you read

Discuss this question with your partner

-Nearly all countries trade with each other. Why do you think this is?

A Vocabulary

Match the words and phrases with the definitions

1. balance of trade

2. imports

3. wide range

4. trading partnerships

5. value of money

6. deficit

7. insurance

8. flow

1. the movement of something, like water in a river

2. big variety

3. financial protection

4. when you receive less money than you pay out

5. when something is worth the amount you pay for it

6. the difference between the total amount of exports and imports for a country in one year

7. people, companies or countries that do business together

8. goods and services a country buys from abroad

Reading 1

The open economy

All through history, people from one society have been trading with people from another. Three thousands years ago, for example, the Phoenicians of the Mediterranean built an economy almost completely on foreign trade. In the jargon of economics, the Phoenicians had an open economy, and almost every economy since theirs has been open too.

When an economy is open, this basically means that it imports and exports goods and services. What are the benefits of doing this? First of all, if you trade with other economies, you can import goods that do not exist in your economy. These may be products that your economy cannot manufacture, but they may also be raw materials. With a wider range of raw materials, an economy is able to use its capital and labour to produce a wider range of products. In this way, importing can actually help an economy grow. What's more, if you allow imports from other countries, then you will have trading partnerships. This means that you can export to countries. If you have customers all over the world, your economy will grow faster.

Open economies are good for consumers, too. If the economy allows imports from abroad, there will be a greater variety of goods available locally. When products are available locally, imports of the same products should help to keep prices down and quality high. This is because local companies will have to compete with foreign companies, and more competition will mean better quality and greater value for money.

Economists describe imports and exports of material goods as visible – because you can really see and touch them. Examples of visible exports and imports are food stuffs, furniture and electronic equipment. However, there are also invisible exports and imports. These are mainly services, but can include all sorts of things. Examples of invisible exports and imports include banking services, insurance products, educational courses and tourism.

Opening up economies, however, does bring problems. One of the main difficulties is keeping a good balance of trade. Every time a country manages to sell a product or service abroad, this means money will flow into the economy. On the other hand, every time someone buys from abroad, money flows out of the country. Over time, if the flow of money out of the economy is greater than the flow of money into the economy, then there is a trade deficit. This is not a good situation to be in. The challenge for governments is to keep the flow of trade equal in both directions, or to achieve a trade surplus. This is when total exports are greater than total imports.

B Comprehension

Now read the text again and decide whether these statements are true or false. If the statement is false, correct it.

1. Most economies in the world were closed until very recently. T_F_

2. Open economies exchange exports and imports with each other. T_F_

3. Importing products will always make the local economy shrink. T_F_

4. Only the producer benefits from an open economy. T_F_

5. If you go abroad for a holiday, you create an invisible export for your country. T_F_

6. When exports earn more money than imports, there is a trade surplus for the economy. T_F_

Before you listen

Try to complete this paragraph about autarchies by using words from the box.

America China closed

Empires invade North Korea

Resources self-sufficient

An autarchy is another word for a completely (1) ………economy. An autarchy does not have trading partners. It is (2)………….. . There are no authorities in the world today, although (3) ………..is almost an autarchy. Autarchies don’t exist because no economy has all the (4) ……….it needs. In the 19^th century, (5) ………….was an autarchy for about one year. (6) …………..was almost an autarchy in the 20^th century. The only real autarchies that have existed are (7) ………… . They have tended to (8) ………..instead of trade!

C Listening

Now listen and check your answers.