Open Economy And Its Effects On Foreign Countries

Many indicators serve to measure the degree of trade openness. The first is designed to assess directly the level of economy openness to foreign trade. The degree of openness measures the level of the external constraint and it is obtained by the ratio of the value of foreign trade on the GDP. The second indicator (distortion) aims to measure the impacts of protectionist policies of a country.

Australia is a small open economy situated in the South Pacific with a population of 24,012,901 (ABS 2016). Australia is classified as a mixed market economy because although the private market makes most economic decisions, government intervention modifies this behaviour through its legislative powers as this gives confindence to government powers to change economic decisions and make it a rule to the people of that country. The People’s Republic of China, with a population of 1.295 billion people (2003), when contrasted to Australia is a much larger economy with a Gross Domestic Product of US$1,000Billion more than Australia’s. China is located to the North of Australia in Asia.

The US economy is an open economy, engaging in trade operations with countries across the entire globe. The economic context is mostly a private one, with the intervention of the government in economy being restricted; in other words, the economy is ruled based on the principles of demand and supply. The government makes its purchases within the private sector.

An open economy is an economy in which there is economic activity between foreign and domestic communities. People and businesses are able to thrive because of it and theoretically, limitless possibilities are open due to the possibility of exchange of foreign goods (however, they cannot do anything that defies the rule of law). America’s current economy has begun to differ from that of the visions of its founding fathers’ because the government has put restrictions on certain companies to prevent any single one from monopolizing an entire section of the economy, thus promoting diversity within similar types of goods.

development is vital not only to economic progress, but to political and social progress as well.

However, pressure from the open market has posed big challenges for the national economy, especially to domestic businesses due to their limited competitiveness and small-scale production. Moreover, there has been ineffective use of foreign capital and the progress of foreign investment disbursement is still slow. Therefore,  how to make full use of advantages to develop a healthy comparative environment and strictly implement commitments to create good conditions for businesses actually is a controversial question.

Open economy brings imports, which are often at a lower price, and they help to satisfy domestic demand. They have also contributed to lower domestic prices and wider choice for the U.S. consumers. The U.S. producers have benefited from lower costs and wider choice of input, too. It increased their competitiveness, resulting in more jobs and higher wages. Imports have helped with inflation pressure that might otherwise have emerged as a result of the very strong growth of domestic demand and low unemployment rate, thereby supporting low market interest rates.

Those economically disadvantaged (poor) within a country generally gain from a loose trade. A loose trade is generally a strong positive contributor to poverty reduction. This allows people to exploit their productive potential, assists economic growth, restrains illogical policy interventions and helps to insulate against shocks. This corresponds with a new World Bank study which, used data from 80 countries over four decades, confirmed that openness boosts economic growth and that the incomes of the poor rose one-for-one with overall growth.

In the recent years, business become more larger due to the advancement of technology, a renewed enthusiasm for entrepreneurship and a global sentiment that favors international trade to connect people, business and market. The economist emphasize about the international trade can increase the production of goods and service, increase the demand from the consumer in local or international, the diversification of goods and services and the stability in the supply and prices of goods and services. As a result, it becomes the main part of the international business and motivated countries to trade with borders. The United States implied the government intervention since the great depression through the financial sector rescue

This paper will cover what falls under the general category of externalities, an externality arises when a person engages in an activity that influences the well-being of a bystander but neither pays nor receives compensation for that effect. If the impact on the bystander is contrary, it is called a negative externality, on the other hand, if it is beneficial, it is called a positive externality. I will explain how microeconomic tools and materials we have covered this semester apply towards externalities and then follow on to its historical analysis. Then I will take it back to the role of the government with externalities which will then lead to how externalities are relevant in my daily life as a student at Cal State Dominguez Hills and why it is important to my readers to understand why. Society’s interest in a market result ranges beyond the well-being of buyers and sellers who contribute in the market. The market equilibrium is not effective when there are externalities because buyers and sellers neglect the outside effects of their actions when determining how much to demand or supply. That is to say, the equilibrium fails to exploit the total benefit to society as a whole.

Open and closed economies are different in the way they manage their exchanges on the international market. An example of an open economy is the UK; the UK allows the import and export of products. In comparison, a country such as Brazil is a largely closed economy that in the majority does not allow exports and imports, they instead produce their own products for their population to use and consume.

An economic openness is an economy which participates in international economics trade activities such as trade in services or goods between local business and foreign business, for example, a shoes producer from Thailand can sell their shoes in Malaysia. There are not only economic openness, and actually closed economy is also exists at the same time. It means international trade does not happen; it is only trade within the country and also the nations.

By allowing specialization, trade between people and trade between countries can improve everyone's welfare. The "invisible hand" of the marketplace represents the idea that even though individuals and firms are all acting in their own self-interest, prices and the marketplace guide them to do what is good for society as a whole. The two main causes of market failure are externalities and market power. An externality is the impact of one person’s actions on the well-being of a bystander, such as from pollution or the creation of knowledge. Market power refers to the ability of a single person (or small group of people) to unduly influence market prices, such as in a town with only one well or only one cable television company. In addition, a market economy also leads to an unequal distribution of income. Productivity is important because a country's standard of living depends on its ability to produce goods and services. The greater a country's productivity (the amount of goods and services produced from each hour of a worker's time), the greater its standard of living will be. Inflation is an increase in the overall level of prices in the economy. Inflation is caused by increases in the quantity of a nation's money. Inflation and unemployment are negatively related in the short run. Thus, reducing inflation entails costs to society in the form of higher unemployment

In today’s world, with a few notable exceptions, nearly everyone in every region of the world has access to the same products, information and services. A long-distance relationship is no longer so distant, since each party involved in the relationship can communicate through Skype, Facebook or through any of the vast amount of social media available. A person in Easter Island, one of the most remote inhabited islands in the world, can go to the other side of the world and travel to Canada. An economic crisis in Argentina could affect the economic landscape in Brazil. A person in Chile or Peru can buy an Abercrombie and Fitch t-shirt because this transnational corporation decided to expand its market to developing countries, or as you might prefer, to emerging economies in South America. Although many of these examples might be trivial, these are the consequences of globalization.

Persistent unemployment pushes many groups to call for protectionism; one of the most effective is organized labor. By limiting imports, local jobs are retained as firms and consumers are forced to purchase domestically produced goods and services. However, unless the protectionist country is relatively small, such measures usually do little to limit unemployment. On the other hand, they may result in a decline in export-related jobs because of (i) price increases for components or (ii) lower incomes abroad. Further, such measures are likely to lead to retaliation unless either the protectionist or the affected country is relatively small. Thus, governments must carefully balance the costs of higher prices with the costs of unemployment and the displaced production that would result from freer trade when enacting such measures.