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and more than a centur
the first billion in 1804
mark
the world is adding a bil-
The Global Population Issue
ark the second. But now
to m
or so.
lion every dozen years ,
growth will slow down Population growth has fascinated the world
emographers believe
D 14
ections say it will take ever since Thomas Malthus published his
] . . . median U.N. proj
[but -
people . . . . That™s calcu
s to add another billion Essay on the Principles of Population in 1798. His
year
population increase of
from the yearly rate of views, published over 200 years ago, are still
lated
about 1.4 percent . . . relevant because of the earth™s growing population
, 1999
”The Cincinnati Post, June 19 and its demand for resources.

CHAPTER 20: GLOBAL ECONOMIC CHALLENGES 545
Malthus: Views on Population annual growth is approximately 1.4 percent a year.
Although this may not seem very fast, the conse-
Thomas Malthus argued that population would
quences can be enormous over time. Every year,
grow faster than its ability to feed itself. The prob-
the population increase is almost the equivalent of
lem, he stated, was that population tended to grow
adding another Mexico to the world. If the popu-
geometrically, as in the number sequence 1, 2, 4, 8,
lation keeps growing at this rate, it will reach about
16, 32, 64, and so on. The ability of the earth to
8 billion by 2020, and nearly 12 billion by 2050. At
feed people, however, would grow at a slower and
this rate, the population of the world will almost
more constant rate, such as 1, 2, 3, 4, 5, and so on.
double from the time you graduate from high
Eventually, according to Malthus, the masses of the
school until you retire at age 65.
world would be reduced to a condition of
subsistence”the state in which a population pro-
duces only enough to support itself.
In many countries”especially in the larger cities
Nonrenewable Energy Resources
of the developing world”poverty is widespread. The
Indian city of Calcutta, for example, has about Population pressure adds to the depletion of
14 million people. Calcutta is one of the poorest and many important resources, and energy is one
most crowded cities in the world. Hundreds of thou- of these resources. Energy is necessary for produc-
sands of street dwellers beg and search for food in the tion, and energy makes our lives more comfortable.
city dumps and refuse piles. At night they sleep in In the form of gasoline, it powers cars. In the form
the streets. Similar conditions exist in other parts of of gas and electricity, it heats and cools homes.
the world. In these places, the Malthusian prediction Most of the energy we use comes from
of a subsistence standard of living is a cruel reality. nonrenewable resources”resources that cannot
be replenished once they are used. The major
nonrenewable resource category”fossil fuels”is
Was Malthus Wrong? being consumed at an alarming rate and may only
In many other parts of the world, conditions are last for a few more generations at current con-
much better. Malthus did not foresee the enor- sumption levels.
mous advances in productivity that have allowed
an increasing standard of living to accompany a
Oil
growing population. He also did not foresee that
families might choose to have fewer children. In Oil is the biggest category of nonrenewable
some countries, such as Japan, for example, the energy in use today”primarily because it was so
population is actually shrinking. inexpensive during much of the 1900s. Oil was also
Malthus™s predictions may not have been much more convenient to use than natural gas or
entirely accurate for the industrialized countries, coal. Because it could be refined into low-cost
but they still have long-term consequences for all gasoline, automobiles were large, heavy, and usu-
nations. Today, for example, population pressures ally got poor gas mileage.
in other parts of the world are causing problems for The low cost of oil even affected living habits.
many industrialized countries, including the United People moved to the suburbs and then spent hours
States, which is besieged by illegal immigrants from traveling to and from their jobs. Gasoline was so
China, Mexico, and Haiti. As a result, many experts inexpensive that trains and city busses never
argue that it is in everyone™s interest to control became as important as the automobile.
global population growth. In 1973, however, the oil-producing countries of
the Middle East placed an embargo”a restriction on
the export or import of a commodity in trade”on oil
World Population Trends sales to the West. The embargo caused energy short-
ages in many parts of the world, driving the price of
Comparative world population growth rates are
oil from $5 to more than $35 a barrel. Prices came
shown in Figure 20.1. For the world as a whole, the

546 UNIT 5 INTERNATIONAL AND GLOBAL ECONOMICS
ECONOMICS
Figure 20.1
AT A GLANCE
AT A GLANCE

World Population Growth Rates




Average annual change
3.0% and higher
2.0% - 2.9%
1.0% - 1.9%
0% - 0.9%
Less than 0%

Source: The World Bank Atlas, 1999

Reading Maps The map shows the population growth rates of the
countries of the world. How does the annual growth rate in China
compare with that of Brazil?
Visit epp.glencoe.com and click on
Textbook Updates”Chapter 20 for
an update of the data.




down slowly after that, reaching their inflation- Historically, natural gas was more difficult to trans-
adjusted pre-embargo levels in the mid-1990s. In late port and use than oil, and so it did not become an
1998, the price of oil even dropped below $9 a bar- important energy source until much later. Even-
rel, although it has since rebounded. tually inexpensive natural gas became popular as
With the exception of the 20 years following the an industrial fuel, and so many factories and indus-
oil embargo, the world was flooded with, and grew trial technologies were built around it.
up on, cheap oil. The oil was eagerly consumed and,
because it is a nonrenewable resource, is gone forever.
Coal
Coal is the third-largest nonrenewable resource
Natural Gas used in the United States. While it was the first
This category constitutes our second most impor- nonrenewable resource to be used on a large scale,
tant energy source, accounting for nearly 25 percent oil and natural gas soon displaced it because they
of energy consumption in the United States. are more convenient to use.

CHAPTER 20: GLOBAL ECONOMIC CHALLENGES 547
Today, nearly two-thirds of the world™s known coal Renewable Energy Resources
reserves are in the United States, Russia, and China.
Before 1973, the low price of oil gave every-
Coal is the most plentiful fossil fuel in the world, but
one very little incentive to develop alterna-
even these supplies will eventually run out. Estimates
tive energy sources. Renewable energy resources
based on the present rate of consumption indicate
became more popular after the oil embargo, but
that the reserves will last about 200 years.
today they still account for a small portion of the
total energy we consume.
Nuclear Energy
Nuclear energy is the newest and fourth largest
Hydroelectric Power
source of nonrenewable energy, accounting for
Historically, hydropower was used to power the
nearly 8 percent of all energy used in the United
mills and factories of the Northeast in the 1800s.
States. The future of nuclear power is uncertain,
The power was reliable, and its source”water”was
however, for a number of reasons.
free at the time. Later, a number of larger genera-
One of the reasons is cost. Nuclear reactors are
tors at the Hoover Dam and the Tennessee Valley
expensive to build and maintain. Second, nuclear
Authority were completed to generate power on a
energy produces highly hazardous byproducts, the
much larger scale. Aside from these newer projects,
safe disposal of which poses a major problem.
most dams were small and could not distribute
Finally, there is always some chance that a
power very efficiently to other locations.
nuclear plant will fail, or that another accident
When oil was obtained cheaply from the Middle
would happen like the 1979 near-meltdown at
East, hydroelectric power became less important.
Three Mile Island in Pennsylvania. The 1986 melt-
By the late 1950s, many of the commercial power
down of the reactor in Chernobyl, Ukraine,
dams in the United States had been abandoned.
served as another reminder of the nuclear power
When oil became more expensive, however, steps
hazards.



Natural Resources




Energy Demand for scarce resources is one of the most pressing problems facing all nations. What are
nonrenewable energy resources?


548 UNIT 5 INTERNATIONAL AND GLOBAL ECONOMICS
ECONOMICS
Figure 20.2
AT A GLANCE
AT A GLANCE
were taken to bring some of the dams back into use.
Today, hydroelectricpower is our most important
The Most Dangerous
renewable energy source, accounting for half of all
renewable energy consumed in the United States.
Nuclear Reactors
Biomass
Kola
Energy made from biomass”wood and wood
waste, peat, municipal solid waste, straw, corn,
tires, landfill gasses, fish oils, and other waste”is RUSSIA
the second most important category of renewable
energy sources. While relatively new, this category Sosnovy Bor
accounts for approximately 40 percent of all renew-
able energy consumed in the United States today. Novovoronezh
Smolensk
Ethanol is grain alcohol made from corn. Baltic LITHUANIA
Sea
Ethanol is used to make gasohol”a fuel that is a
Kursk
Ignalina
mixture of 90 percent unleaded gasoline and 10
percent ethanol. Although gasohol has not been Chernobyl
Bohunice
accepted as quickly as supporters first hoped, it still UKRAINE
has a small share of the market in some areas. SLOVAKIA
Other, lesser-known alternatives are also being Graphite-moderated
Kozloduy Black
reactors
used. Major food firms have made progress in con- Sea
Pressurized water
verting chicken waste to fuel in the form of methane BULGARIA
reactors
gas. This gas can then be recycled for industrial and
commercial use. Over 100 cities are currently recov-
ering and using methane gas generated in municipal
Reading Maps Nuclear reactors serve three
landfills when the landfill waste decomposes.
general purposes. Civilian reactors generate
energy for electricity and sometimes also
Solar Energy steam for heating. Military reactors create
materials that can be used in nuclear
Solar power is the third largest source of renew-
weapons. Research reactors are used to
able energy. Solar power has never been effec-
develop weapons or energy production
tively harnessed, however, and it did not get much
technology. How many nuclear power
attention at first. After the oil embargo, the fed- plants are located in the former Soviet
eral government began issuing grants to Union and Eastern Europe?
researchers to find ways to reduce the cost of solar
energy. While solar power holds much promise, it
only accounts for a fraction of the renewable
While this is still a small category, wind-generated
energy used today.
electricity is an important source of power in areas
such as islands or remote peninsulas where it is dif-
ficult to obtain other forms of energy.
Wind Power
The fourth-largest category of renewable energy
sources is wind-generated electricity. In the early
Other Resources
1980s many wind farms were built, each of which
produced enough electricity to power a medium- Resources other than those used to generate
sized city. California is the largest producer of energy”water and land in particular”may
wind-generated energy, but it can also be found in also be in danger. In the past, American concern
Texas, Minnesota, Vermont, Hawaii, and Iowa. with water focused mainly on the pollution of the

CHAPTER 20: GLOBAL ECONOMIC CHALLENGES 549
Aquifers supply nearly 40 percent of the water that
farmers use and are also the source of fresh water
for many communities.
Science
One of the largest aquifers in the country is the
Biotechnology is making an impact in the world
Ogallala Aquifer, which supplies water to the
economy. Genetic engineering allows re-
High Plains states from Texas to Nebraska. So
searchers to place a gene into a plant in order
much water has been pumped out, however, that
to create a new plant that can grow twice as
the aquifer™s water table has been dropping about
fast. Agricultural experts estimate that within
three feet a year. Some experts even predict that
the next 40 years the world population will
the Ogallala Aquifer will run out of water in the
increase by 50 percent, which means farmers
will need to produce more crops than ever next 40 or 50 years.
before. To sustain economic growth in the The water shortage is also a problem in southern
developing world, experts believe that food California. Over the years, plans have been pro-
productivity improvements must be made using posed and projects have been undertaken to bring
this type of biotechnology. in water from areas hundreds of miles away.
Land is another valuable natural resource sub-
ject to the demands of a growing world popula-
tion. Land, however, is different from other
country™s waterways. Today, however, the focus has
resources because there is only a fixed supply that
shifted to the availability of water and the realiza-
cannot be moved from one place to another.
tion that water is in critical supply in many parts of
A growing population has the effect of reducing
the country.
the amount of land available for agriculture. As
More than 80 percent of the water consumed in
communities grow, factories, roads, and houses are
the United States is used in agriculture, and most
built on the fertile land near the rivers. The devel-
of this water is used in surface irrigation, which has
opment of this land forces the farmers to move to
a high evaporation rate. As a result, much water is
the outskirts. The phenomenon, now known as
lost into the atmosphere.
urban sprawl, has claimed some of our finest farm-
Farmers have been able to tap large sources of
land”covering fertile fields with expressways, shop-
water from rivers, streams, ponds, and aquifers”
ping centers, and housing developments.
underground, water-bearing rock formations.




Checking for Understanding Applying Economic Concepts
1. Main Idea How does population growth 7. Scarcity During the oil embargo, many peo-
affect world resources? ple openly advocated nonprice gasoline
rationing. Some favored allowing each auto-
2. Key Terms Define subsistence, nonrenewable
mobile owner to use 10 gallons per week.
resources, embargo, gasohol, aquifer.
What are the pros and cons of such a manda-
3. Describe how Malthus believed population tory rationing program?
growth would affect the future of the planet.
4. Identify the importance of conserving non-
renewable resources.
8. Making Comparisons How do renewable
5. List the major renewable resources today. resources differ from nonrenewable
resources?
6. Describe the effects that a growing popula-
tion has on scarce resources such as aquifers. Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.



550 UNIT 5 INTERNATIONAL AND GLOBAL ECONOMICS
A Classical Economist:
Thomas
Malthus
(1766“1834)

Thomas Malthus was an English
economist, sociologist, and mem-
ber of the clergy who pioneered
for others to read. The result was
modern population study. He was
An Essay on the Principle of Population
a kind, gentle person dedicated to
as It Affects the Future Improvement of
his father and his church. He was
Society, published in 1798.
also the economist who is credited he refined his ideas, he added a
with giving economics the title of fourth check: moral restraint.
“the dismal science.” Separately or together, these fac-
P O P U L AT I O N T H E O RY
tors could raise the death rate,
The book was an instant success
lower the birthrate, or both. In
E D U C AT I O N
that was to change forever the way
Malthus™s view, however, these
Malthus was born to wealthy people viewed population. In it,
restraints on population growth
parents and was educated at home Malthus argued that poverty and
would not be enough to prevent
by his father and by private tutors. distress would be the eventual fate
most of the world from forever
At age 18 he enrolled at Jesus of people, not the popular utopian
remaining at the subsistence level.
College, Cambridge, to study vision. He reasoned that popula-
Despite his considerable accom-
mathematics and the classics. tion would increase at a geometric
plishments in other aspects of
While he was away from rate (1, 2, 4, 8, 16, . . .), while food
economics, Malthus is best
home, Malthus and his father supplies would increase at an arith-
remembered for his pessimistic
often exchanged letters debating metic rate (1, 2, 3, 4, 5, . . .).
views on population.
the popular issues of the day. According to this progression,
At one point, the elder Malthus population growth would eventually
became fascinated with a popular outstrip the available food supply,
utopian vision that promised even- resulting in famine, misery, and a
Examining the Profile
tual peace, prosperity, and equality subsistence standard of living for
1. Evaluating Information Do you
for all. Malthus attacked the argu- the masses.
agree or disagree with Malthus™s pre-
ment in a 50,000-word letter to his At first, Malthus thought only
dictions about population? Why or
father. The elder Malthus was so three factors could check the
why not?
impressed that he encouraged growth of population: war, famine,
2. For Further Research Find out what
Thomas to publish the treatise and disease. Several years later, as
Malthus™s other contributions to eco-
nomics were.

CHAPTER 20: GLOBAL ECONOMIC CHALLENGES 551
Economic Incentives
and Resources

Main Idea Key Terms
Incentives help preserve scarce resources. glut, pollution, acid rain, pollution permit
Reading Strategy Objectives
Graphic Organizer As you read the section, complete After studying this section, you will be able to:
a graphic organizer similar to the one below by 1. Explain how the price system helps conserve water,
providing examples of ways to curtail the incentive natural gas, and oil.
to pollute. 2. Describe government efforts to limit pollution.
3. State the importance of using resources wisely.

Applying Economic Concepts
Methods to curtail
the incentive to Markets and Prices Have you ever traveled to differ-
pollute
ent gasoline stations to get the cheapest price for a
gallon of gas? Read to find out how markets and
Example Example prices operate in the free enterprise system.




E
conomic systems require incentives to make
Cover Stor y them work smoothly. In a market economy,
incentives such as the profit motive and prices
Lawmakers can be used to preserve scarce resources.
Economic incentives are important because they
Can Recycling tend to encourage more widespread and lasting
in House results than other programs that rely on conscience,
patriotism, or other motivations. Those who create
WA S H I N G T O N
them, as you read in the cover story, often abandon
(AP)”The House of
voluntary conservation programs.
Representatives has
rejected mandatory
recycling for its offices.
The House has Recycling area
The Price System
had a voluntary recy-
cling program for a onth With resources becoming increasingly
ted Press reported last m
decade. But the Associa alu-
offices were still mixing scarce, it is important to see how the price
that most congressional per.
d different grades of pa system contributes to the conservation”or lack”
minum cans, bottles an sepa-
and local governments of scarce resources. The examples that follow
Many federal agencies
recyclable material. illustrate this influence.
rate their trash and sell
The higher price for oil after 1973 dramati-
e 11, 1999
Jun
”The Washington Post,
cally affected the production of oil. When oil
was priced below $5 a barrel, few countries were

552
willing to devote large resources to retrieve it. Ultimately, the price system works to establish
When the price increased to $35 and more, many an equilibrium between the rising cost of obtaining
countries increased their production almost water and the profitability of the crops grown with
overnight. At the same time, interest in alternative the water. Although some crops and fields will be
energy sources soared, and countries poured bil- abandoned, they are likely to be the ones that were
lions into energy-research projects ranging from the least productive in the first place. As a result,
shale oil to solar power. the actual amount of lost agricultural output will
By 1981, however, prices began to fall because of not be that large.
a worldwide glut”a substantial oversupply”of oil. When the price of natural gas was low in the
A decline in demand caused by a recession con- 1960s, the quantity demanded was high. Because
tributed to the worldwide oversupply. People had government regulated the price, however, produc-
also learned to conserve energy, which further ers had little incentive to increase its production.
reduced the demand for oil. Congress then tried to stimulate gas discovery
The collective impact of the increase in world and production by lifting the price controls on
supply and the decline in demand caused OPEC to deep gas-pockets of natural gas, 15,000 feet or more
lose some of its ability to control the supply of oil. below the earth™s surface. The price of this gas then
This control slipped even further after the Persian rose to three or four times its previous level, caus-
Gulf War, when some OPEC members increased ing even more exploration for deep gas. Later, all
oil production to replenish their financial reserves gas price controls were removed, which encouraged
depleted during the war. Finally, oil prices reached even more production.
their pre-embargo levels in the mid-1990s.
Lower oil prices had several consequences. First,
Conservation
the search for alternative energy sources began to
wane. Second, the exploration for new oil slowed
dramatically because companies already had
enough oil. Third, consumers changed their spend-
ing habits again. New houses became large once
more, and consumers opted for low-mileage, sport
utility vehicles instead of fuel-efficient economy
cars.
In the end, the very mechanism that encouraged
people to conserve energy when oil prices were
high”the price system”did exactly the opposite
when oil prices went down again.
When farmers pump water out of the ground to
water their crops, they use pumps driven by elec-
tricity or natural gas. When water tables fall
because of pumping, it costs more to pump the
water. The increased cost of pumping encourages
everyone to use it more efficiently, thus conserving
a scarce resource.
In time, the falling water table makes some of
the shallow wells useless, requiring deeper and
more costly wells to be drilled. At this point, the
price system will affect farming decisions again.
The Price System Surface irrigation systems
Deeper wells will be dug for the most profitable
are fairly common in the United States. How
crops, while marginal and unprofitable crops will does the price system affect farming decisions?
be abandoned.

CHAPTER 20: GLOBAL ECONOMIC CHALLENGES 553
The lack of interest in drilling for shallow gas The Incentive to Pollute
was consistent with the law of supply, which main- Pollution does not occur on its own: it occurs
tains that the lower the price paid to producers, the because people and firms have an incentive to pol-
less will be brought to market. Also consistent with lute. If that incentive can be removed, pollution
the law of supply was the effort by producers to will be less of a problem.
produce more of the deregulated deep gas when its For years, factories have located along the banks
price went up. of rivers so they could dump their refuse into the
moving waters. Some factories that generated
smoke and other air pollutants located farther from
Pollution and Economic Incentives the water, but their tall smokestacks still blew the
pollutants long distances. Others tried to avoid the
Pollution is the contamination of air, water, problem by digging refuse pits on their property
or soil by the discharge of poisonous or nox- and burying their toxic wastes.
ious substances. Pollution is a problem that most In all three situations, factory owners were trying
countries face today. to lower production costs by using the environ-
ment as a giant waste-disposal system. From an eco-
nomic point of view, the reasoning was sound.
Firms get ahead when they lower production costs.
Those who produce the most at the least cost make
the most profits.
EPA Inspector
The cost of pollution to society as a whole, how-
ever, is huge. For example, acid rain”a mixture of
The Environmental Pro-
water and sulfur dioxide that makes a mild form of
tection Agency (EPA) is
sulfuric acid”falls over much of North America,
the federal agency respon-
sible for protecting the damaging countless rivers and streams. Fertilizer
environment. It employs buildup and raw sewage runoff poison eco-
thousands of inspectors to systems in other areas. The damage caused by pol-
supervise enforcement of lution is extensive, but it can be controlled. One
pollution control laws and way to control pollution is through legislated stan-
regulations.
dards. Another way is through economic incentives.

The Work Controlling Pollution
EPA inspectors examine air, water, and soil for evidence of
Legislated standards include laws that specify the
pollution. Investigating the cause and scope of pollution
minimum standards of purity for air, water, and
requires inspectors to visit sites where pollution might
auto emissions. Congress, for example, has
occur and test for pollutants and collect samples for
declared that all automobiles sold in the United
analysis. They monitor the air quality of major cities and
States must meet certain pollution standards.
of industrial sites. After completing their examination,
Legislated standards can be effective, but they
EPA inspectors put together reports of their findings and
are generally inflexible. Once a standard is set, a
initiate action to stop further pollution.
firm has to meet it or cease production. Because of
this, many firms lobby extensively to exempt their
industry from the pollution controls.
Qualifications
Another method of controlling pollution is to
EPA inspectors generally have a college education with a
have companies pay taxes on the amount of pollu-
specialization in environmental or biological science, plus
tants they release. The size of the tax would depend
several years of experience in the field. As with most gov-
on the severity of the pollution and the quantity of
ernment jobs, EPA applicants must pass a civil service
toxic substances being released.
examination.

554
Fighting Pollution




The Incentive to Pollute Pollution is one of the painful by-products of modern life. Damage caused by
pollution is extensive. What methods are used to hinder the incentive to pollute?



Suppose a community wants to reduce air pol- Pollution Permits
lution caused by four factories, each of which The Environmental Protection Agency (EPA)
releases large quantities of coal dust. A $50 tax on currently uses a similar system to reduce sulfur
every ton of coal dust released into the air would dioxide emissions at coal-burning electric utilities.
be applied to each factory. Devices attached to the Sulfur dioxide emissions from the burning of coal
top of the factory™s smokestacks would measure the and oil react with water and oxygen to form com-
amount of dust released during a given period, and pounds that fall to the earth as acid rain. The
the factory would be billed accordingly. EPA™s target is to ultimately reduce sulfur dioxide
Each company would then have the choice of emissions to a level of nine million tons per year.
paying the tax or removing the pollutants them-
selves. This tax approach does not try to remove all
pollution. It does, however, allow individual com-
panies freedom of choice. It also provides flexibil-
ity that legislated standards lack”and may even
prevent some plants from closing entirely.
Some firms would rather pay the tax than clean
Student Web Activity Visit the Economics: Principles
up their own pollution. These firms, however, help and Practices Web site at epp.glencoe.com and click
fund the pollution clean-up campaign. Consumers on Chapter 20”Student Web Activities for an activ-
will not have to fund these efforts out of their ity on the Environmental Protection Agency.
income, sales, or property taxes.

CHAPTER 20: GLOBAL ECONOMIC CHALLENGES 555
Issuing Permits
The EPA started its program by issuing sulfur
Most climatologists agree that the
Global Warming
dioxide pollution permits”federal permits allow-
earth is likely to warm by as much as 2° to 9° F over
ing public utilities to release pollutants into the
the next 50 to 60 years. Human activities have
air”in 1993. Utilities are not allowed to operate
released gasses that trap in the sun™s rays and heat
without them, but if a utility has more permits
the earth. Scientists believe that polar caps will
than it needs, it can sell them in one-ton incre- begin to melt, raising sea levels from at least a foot
ments. Thus, utilities that want to spend money on to as much as 6.6 feet in the next century. An esti-
emissions cleanup could sell their permits, and use mated one-third of the world™s population who live
the cash to clean up their emissions. Those who within 40 miles of the sea could be facing severe
prefer to purchase and use the permits can do so. flooding and depletion of their freshwater sources.
The first set of pollution permits went on sale
in March 1993 at the Chicago Board of Trade. The
one-ton permits brought prices ranging from $122
to $450 each. The EPA issued additional permits Using Resources Wisely
in successive years, but fewer permits will be
The resource challenge is vital to a growing
issued as time goes on, making them scarcer and
global economy. Resources become scarce
more expensive. Ultimately, the utilities will
when the quantity demanded for them is greater
either have to pay very high prices for the permits,
than the quantity supplied. In a market economy,
or they will have to buy additional antipollution
the price system plays a major role in the alloca-
devices.
tion of resources. It tells consumers when
resources are scarce. It also helps decision makers
Advantages allocate resources more wisely.
The system also has advantages for environmen- Economists who understand the workings of a
talists who wanted utilities to reduce pollution at market economy are optimistic about the future,
even faster rates. Several environmental groups especially if the price system is allowed to function
purchased the pollution permits with their own and fulfill its role in the economy. As long as the
funds, making them scarcer and therefore more price “system” is allowed to operate, we will never
expensive, for the utilities. suddenly run out of an endangered resource.




Checking for Understanding Applying Economic Concepts
1. Main Idea What are two incentives that can 6. Markets and Prices Suppose that the demand
be used to preserve scarce resources in a for natural gas increases sharply because of a
market economy? series of extremely harsh winters. How would
a price increase affect gas usage as well as
2. Key Terms Define glut, pollution, acid rain,
research efforts by natural gas companies?
pollution permit.
3. Describe how the price system helps conserve
water, natural gas, and oil.
7. Making Comparisons How do legislated
4. Identify the ways that the government tries
standards and economic incentives differ in
to limit pollution.
regard to pollution control?
5. Explain why resources should be used wisely.
Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.



556 UNIT 5 INTERNATIONAL AND GLOBAL ECONOMICS
MAY 24, 1999
Newsclip
Foreign plants and animals are invading In Guam, the brown tree snake has
eradicated 9 lizard species and 10
North America as a result of increased
types of forest bird. . . .
global trade and tourism. It is estimated
In many ways, bioinvasion is
that invasive species cost the U.S. more
the dark side of globalization.
than $122 billion a year in damages. With more and more goods enter-
ing the country, it™s easier for pests
to stow away. Christopher J. Bright, a
They™re Here, researcher at the Worldwatch Institute, says
booming tourism also opens the way for inva-
and They™re sions. Every day, some 2 million people cross
an international border around the world;

Taking Over
every week, a million people move between
developed and developing nations.
Efforts to control the menace have been far too
fragmented. There are 24 federal agencies with
Bioinvasion, the spread of nonnative species,
some authority to regulate nonnative species, and
is fast becoming one of our most costly ecologi-
it has been difficult to coordinate their efforts. . . .
cal problems as it disrupts food and agriculture,
. . . Under the current system, an import is
destroys wetlands, interferes with shipping, and
deemed safe unless it™s on a list of organisms
drastically alters natural habitats. . . .
known to be harmful. Often, by the time federal
. . . The list of troublemakers include nox-
regulators have the evidence to blacklist a particu-
ious weeds ($35 billion), harmful insects
lar species, it™s too late. . . .
($25 billion), and organisms, such as the AIDS
Ecologists would prefer a “white-list” law, one
virus and cholera, that cause human disease
that bans entry of plants and animals until they™re
($6.5 billion). . . .
proven innocent. New Zealand and Australia
There is also a huge untallied cost. Exotic
already have such laws, but some U.S. officials
species destroy the ecosystems that support
worry that such a policy could alienate trading
native species, leaving them nowhere to go. . . .
partners. Still, there is a growing sense that it may
Jack Russell terriers sniffing for snakes in cargo at Guam airport be worth the risk. . . .
”Reprinted from May 24, 1999 issue of Business Week, by special
permission, copyright © 1999 by The McGraw-Hill Companies, Inc.




Examining the Newsclip
1. Understanding Cause and Effect How has
globalization contributed to bioinvasion?
2. Analyzing Information Why would a “white-
list” law alienate some U.S. trading partners?


CHAPTER 20: GLOBAL ECONOMIC CHALLENGES 557
Applying the Economic Way
of Thinking
Main Idea Key Terms
Economics provides a foundation for analyzing cost-benefit analysis, modified free enterprise economy
choices and making decisions.
Objectives
Reading Strategy After studying this section, you will be able to:
Graphic Organizer As you read the section, complete 1. Describe the reasoned approach to economic deci-
a graphic organizer similar to the one below by sion making.
describing how American capitalism has changed. 2. Understand how our market economy will be able
to cope with the future.

Applying Economic Concepts
American capitalism
Cost-Benefit Analysis Have you ever decided not to
do something because the cost of doing it was
Capitalism Capitalism greater than the benefits that would be received?
of the 1930s today
Economists call this cost-benefit analysis”and they
use this analysis often. If you think the same way, per-
haps you are starting to think like an economist.




Cover Stor y
A
s a science, economics is concerned with the
way in which people cope with scarcity.
am
The Outlook”Pushing Ad
Because scarcity is a universal problem, the
study of economics is important to everyone.
Smith Past the Millennium The economic system based on capitalism and free
enterprise has, as you just read in the cover story,
WA SH IN G T O N ” If
done quite well. There is also every likelihood that it
visit
Adam Smith were to
will continue to do well in the future”although we
™s
the U.S. at the millennium
he
end, he would like what also expect some evolution and modifications as we
ible
saw. . . . Today, the invis deal with new challenges and opportunities.
and
hand is more limber
supple than ever.
Free market idea grows
In the past two decades,
A Framework for Decision Making
ed
globalization has forc scale,
compete on a worldwide
American companies to talis- Through the study of economics, you learn
unism has extended capi
and the collapse of comm ulation
rner of the globe. Dereg that choices must be made. You begin to
tic principles to every co sulated
rces into areas long in discover different ways to analyze a problem, and
has injected market fo better-
e Internet has helped that alternatives must be considered. The late
from them . . . [and] th sellers
ions of new sellers, and economist Kenneth Boulding observed that eco-
informed buyers find leg
.
find far-flung buyers. . . nomics has evolved to the point that it has now
1999
l, June 6, become a generalized theory of choice.
”The Wall Street Journa


558
will transform the global economy well into the
next century. Already, capitalism is flourishing in
THE INFORMATION regions as diverse as communist Asia and the former

REVOLUTION dictatorships of Latin America. Affluence is lifting
millions out of poverty, giving many the chance to
purchase their first Fiats and Toyotas as well as their
In this era, not only is capitalism global but so is
first Apple computers and Panasonic VCRs. And
the Information Revolution. As powerful data
inflation is brought to heel in even the most way-
networks spread, the developing nations are
ward economies.
being drawn into the borderless information
The implications are huge for rich and poor
economy.
alike. Hundreds of millions of peasants are leaving
Inside a gleaming computer center in Taipei, a
ancient ways of life for the factory. Cities such as
young engineer labors late into the night.
Guangzhou and Bangalore teem with new inhabi-
Connected by the Internet to some of the best soft-
tants. Many are living poorly, of course, but just as
ware writers in the U.S., he is helping design a digi-
many are thriving.
tal phone system that will match anything the U.S.
”Business Week, December 14, 1998
or Europe can muster.
In China™s northern boomtown of Tianjin, an
auto worker pores over documents on how to
Critical Thinking
arrange a low-interest mortgage on a modern con-
dominium. In Mexico City, a working couple plows
1. Summarizing Information What is the
savings into a mutual fund, all to put two children main point of the article? Write a thesis
through private school. sentence in your own words explaining the
Ingenuity, new prosperity, middle-class striving” main point.
familiar Western values are appearing on the fron-
2. Drawing Conclusions “The Information
tiers of capitalism. Multiply these scenes by the
Revolution will draw economies from dif-
millions, and you see the shape of a revolution that
ferent parts of the world closer.” Do you
agree or disagree with this statement?
Explain your answer.




Economics provides a framework for decision 1. State the problem or issue.
making that helps people to become better decision 2. Determine the personal or broad social goals
makers. The future will be different than the past, or to be attained.
even the present for that matter, but some things in 3. Consider the principal alternative means of
economics”the way we think about problems”are achieving the goals.
likely to remain the same. 4. Select the economic concepts needed to
understand the problem and use them to
appraise the merits of each alternative.
5. Decide which alternative best leads to the
A Reasoned Approach attainment of the most goals or the most
Economic decision making requires a careful, important goals.
reasoned approach to problem solving. The
”A Framework for Teaching the Basic Concepts, 1996
National Council on Economic Education, an
organization dedicated to the improvement of eco-
nomic literacy in the United States, recommends Life is full of trade-offs, but you will be better
five steps. These steps provide useful guidelines to equipped to deal with the future if you know how
decision making. to analyze the problems you will encounter.

CHAPTER 20: GLOBAL ECONOMIC CHALLENGES 559
Decision Making at the Margin another, but evaluating the costs and benefits of
each choice helps in making decisions.
Economists use a number of tools to help them
Finally, we must remember that the economist
analyze and make decisions. Some of these tools
uses a very broad definition of costs”that of oppor-
include production possibilities curves, supply and
tunity costs. This ensures that we account for all of
demand curves, production functions, and even
the costs of a decision, not just the monetary ones.
the National Income and Product Accounts.
One of the most important decision-making
tools is the concept of marginal analysis. For exam-
Coping With the Future
ple, when a firm makes a decision to produce addi-
tional output, it compares the extra cost of Everyone wants to know what will happen to
production with the extra benefits to be gained. If the economy in the future. How will it adjust
the benefits outweigh the costs, the firm decides to and what course will it take? Part of the answer can
continue with the additional production. If the be found by examining the way markets work.
costs outweigh the benefits, the firm decides not to
produce the additional output.
Markets and Prices
This process”cost-benefit analysis”involves com-
paring the costs of an action to its benefits. Firms Our modified free enterprise economy”a free
use cost-benefit analysis when they make decisions enterprise economy with some government
to produce or purchase additional capital equip- involvement”is one that allows buyers and sellers
ment. Many government agencies use it when they to freely make the decisions that satisfy their wants
evaluate programs. Individuals also use it when they and needs. The forces of supply and demand inter-
make decisions. Cost-benefit analysis is even used act to establish prices in a market. Prices, in turn,
to make choices among economic goals. Some act as signals, helping producers and consumers to
choices will work against one goal while favoring make or even alter their spending decisions.
Prices also influence the allocation of resources
across markets. The high price of oil in the 1970s
made other energy sources competitive. In the 1980s,
the high prices of personal computers attracted pro-
INFOBYTE ducers. Competition soon lowered prices and made
the same computers affordable to mass markets.
A market economy has many advantages,
Economic Forecasts An economic forecast is a
projection regarding the future direction of all including the ability to adjust to change gradually,
or part of the economy. Economists analyze without the need for government intervention. As
economic data to identify trends, and perform long as the forces of supply and demand are
statistical evaluations to build their forecasts.
allowed to function, they will send producers and
Economists are like scientists in that they study
consumers the signals needed to reallocate
phenomena by making observations based on col-
resources. Although no one knows what the future
lected data. The purpose of their studies is to
will bring, capitalism has demonstrated its ability
uncover relationships between economic events
to adapt in the past, and it is likely to do so again
and variables. An economist may, for example,
in the future.
study trends in the price and sales behavior of the
domestic automobile market to arrive at a predic-
tion of future auto sales. Businesses and govern-
ments rely on such forecasts for policy-making
The Triumph of Capitalism
and goal-setting purposes. Individuals rely on
During the 1930s, the forces of socialism and
these forecasts for their spending and investing
communism were sweeping the world, while capi-
decisions.
talist countries were in economic depression.
Communism in the Soviet Union had considerable

560 UNIT 5 INTERNATIONAL AND GLOBAL ECONOMICS
impact upon the world, and socialist parties were the same way a market adjusts to small changes in
on the rise in the European colonies in Africa. supply and demand”incrementally, with adjust-
Since then, communism in the former Soviet ments so small that they are hardly noticed in the
Union has collapsed under the weight of its own short run. This ability to evolve, and to adjust to
inefficiencies. Many socialist countries have the demands placed on it, are strengths of capital-
embraced capitalism and the discipline of the mar- ism that will continue to ensure its success.
ket system. In addition, many developing countries
have chosen capitalism as their economic system.
Many emerging economic powers”including Nature of Capitalism
Singapore, South Korea, and Taiwan”owe much of
their remarkable growth to capitalism.
Capitalism is now the dominant economic force
in the world, but it is not the laissez-faire capitalism
of the past. Capitalism has changed because people
have addressed some of the weaknesses that Karl
Marx and others identified many years ago.
The capitalism of the 1930s was ruthlessly effi-
cient in that it provided only for those who pro-
duced or earned enough to buy the necessities of
life. Early capitalism had little room for the elderly,
the ill, or the incapacitated. Many economies
today, including that of the United States, have a
modified free enterprise economy, or modified pri-
vate enterprise system. This is a free-market econ-
omy based on capitalism, yet modified by its
people to satisfy the economic goals of freedom, Adaptability In many industrial countries, cap-
efficiency, equity, security, full employment, price italism is the prevailing economic system.
Capitalism is based on private ownership of the
stability, and economic growth.
means of production and on individual economic
Capitalism has evolved over the years, and it
freedom. How was the capitalism of the past
shows every sign of continuing to do so in the different from the capitalism of today?
future. In this respect, capitalism adjusts to change




Checking for Understanding Applying Economic Concepts
1. Main Idea How does cost-benefit analysis 6. Cost-Benefit Analysis Think of a decision you
affect the decision-making process? must make in the next few days. How will
you use your estimates of the costs and bene-
2. Key Terms Define cost-benefit analysis,
fits to make your decision?
modified free enterprise economy.
3. Explain the reasoned approach to economic
decision making.
7. Synthesizing Information Provide an exam-
4. Describe how a market economy adapts to
ple of how prices act as a signal to you as a
change.
buyer and as a seller.
5. Explain how marginal analysis assists in
decision making. Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.



CHAPTER 20: GLOBAL ECONOMIC CHALLENGES 561
Making Predictions
Predicting future events is obviously difficult and sometimes risky. The more
information you have, however, the more accurate your predictions will be.


Learning the Skill In 1950, only 42 percent of Latin Americans were city
dwellers; today almost 73 percent live in cities, according to
Follow these steps to help you analyze information
the United Nations. This compares with 34 percent in
in order to make predictions.
Africa and 33 percent in Asia. Despite oppressive poverty,
• Gather information about the decision or action. Peruvians seeking a better life, for example, have been
fleeing the countryside for Lima at the rate of more than a
• Use your knowledge of history and human behav-
thousand a day and building settlements that seem like a
ior to identify what consequences could result.
never-ending expanse of small straw huts next to a noisy
• Analyze each of the consequences by asking: How highway. The trend has created megacities throughout the
likely is it that this will occur? continent.
The equation is similar in many countries. The major
Practicing the Skill city attracts one-quarter to one-third of the country™s
population, with many living in squalid slums . . .
Study the following passage, then answer the
encircling the affluent city. Experts say that by the year
questions that follow.
2010, Rio de Janeiro and Sao Paulo will be one
continuous megalopolis 350 miles long with almost 40
million people.
”by John L. Petersen, The Road to 2015


1. What trend does the passage show?
2. Do you think the trend the writer describes is likely to
continue?
3. On what do you base this prediction?
4. What occurrences might have an effect on changing
the trend?
5. What are three possible consequences or outcomes of
this trend?




Analyze three articles in the business section of
the newspaper. Predict three consequences of the
actions in each of the articles. On what do you
base your predictions?
Market scene, Peru
Practice and assess key social studies skills with the
Glencoe Skillbuilder Interactive Workbook, Level 2.
562
Section 1 • The traditional response to pol-
lution is to have the govern-
The Global Demand ment pass legislated standards
prohibiting it.
for Resources (pages 545“550)
• Economists argue that pollution
• Over 200 years ago, Thomas Malthus predicted cannot be controlled until the economic
many of the population problems some developing incentives to pollute
nations face today”high birthrates, famine, and the are removed.
threat of a subsistence standard of living.
• Programs including pollution
• Malthus did not foresee advances in technology or taxes and pollution permits are
that some birthrates would fall and some popula- designed to give firms the incentive to not pollute.
tions cease to grow.
• Markets have the flexibility to adjust to change”an
• Many nonrenewable resources such as oil, natural adjustment that affects prices and the allocation of
gas, and coal are threatened today. resources.
• The oil embargo of the early 1970s raised oil prices
and encouraged Americans to seek alternative energy
Section 3
sources, along with alternative and renewable
energy sources.
Applying the Economic Way
• Some renewable energy resources”hydroelectric
of Thinking (pages 558“561)
power, biomass, solar
power, wind power”have
• Economics has become a generalized theory of
been developed, includ-
choice and a framework for decision making.
ing gasohol, a combina-
• The National Council on Economic Education has
tion of unleaded gasoline
recommended a five-point approach to decision
and grain alcohol.
making; the final step involves cost-benefit analysis,
• Other resources like water
which compares the cost of a decision to the benefits
and land are also coming
gained.
under pressure because of
• A fundamental knowledge of economics helps peo-
population growth.
ple cope with the future, especially now that capital-
ism has emerged as the dominant type of economic
organization in the world today.
Section 2
• Modern capitalism is not the ruthlessly efficient
Economic Incentives and version of the 1930s; modern capitalism has been
modified to suit the economic goals of their
Resources (pages 552“556) people.
• •
During the oil embargo of the 1970s, high gas prices In the markets of the world today, supply and
provided an incentive to preserve resources. When demand establish prices, and prices serve as signals
prices came back down, conservation efforts waned. to both producers and consumers.
• •
As the population has grown and used more energy The flexibility markets provide enables the modern
resources, people have become concerned about modified free enterprise economy to better deal
pollution. with the unforeseen events of the future.


CHAPTER 20: GLOBAL ECONOMIC CHALLENGES 563
3. List the four major nonrenewable energy resources.
4. Describe the major drawback of nuclear energy.

Section 2 (pages 552“556)
Self-Check Quiz Visit the Economics: Principles
5. Explain how American consumers and the auto-
and Practices Web site at epp.glencoe.com and
click on Chapter 20 ”Self-Check Quizzes to pre- mobile industry reacted to the oil price increases
pare for the chapter test.
of the 1970s.
6. Explain how the reluctance of oil and gas produc-
ers to drill for shallow gas was consistent with the
Identifying Key Terms law of supply.
Write the term that best completes the following sentences. 7. Describe what the EPA hopes to accomplish by
issuing pollution permits.
a. pollution permits f. pollution
b. biomass g. aquifer 8. State how the price system in a market economy
c. modified free h. embargo helps ensure that resources are used wisely.
enterprise economy i. gasohol
d. glut j. subsistence Section 3 (pages 558”561)
e. acid rain
9. List the steps involved in economic decision making.
1. The state in which the population produces barely 10. State the importance of cost-benefit analysis.
enough to support itself is _____ .
11. Explain why adapting to change is important for
2. The United States has a(n) _____ , a system that has an economic system.
been altered by its people to satisfy economic goals.
3. A restriction on the export or import of a commod-
Thinking Critically
ity in trade is a(n) _____ .
1. Making Comparisons If you had to decide to
4. _____ is a mixture of 90 percent unleaded gasoline
use legislated standards or a pollution tax to
and 10 percent grain alcohol.
reduce pollution, which would you choose? In
5. An underground water-bearing rock formation is
your reasoning, explain the pros and cons of each
a(n) _____ .
approach. Use a graphic organizer similar to the
6. The second largest source of renewable energy is one below to organize your answer.
_____ .

Controlling Pollution
Reviewing the Facts
Section 1 (pages 545“550)
Legislated
Pollution tax
1. Describe why, despite Malthus™s predictions, certain standards
parts of the world have enjoyed steadily increasing
standards of living.
2. Explain where the most rapid rates of population Pros Pros Cons
Cons
growth are found.



564 UNIT 5 INTERNATIONAL AND GLOBAL ECONOMICS
2. Making Predictions In what ways can Americans Thinking Like an Economist
ensure the wise use of resources? How might the
Renewable energy resources only account for a small
world be different in 50 years if we do not use
portion of our total energy production. Explain the
resources wisely today?
changes that would have to take place in order for peo-
ple to make greater use of renewable energy resources.
Applying Economic Concepts
1. Scarcity Scarce natural resources are a problem Technology Skill
that concerns citizens throughout the world. What
Using a Database Create a database on recycling cen-
can you personally do to help conserve resources?
ters in your community. Look in the telephone book
2. Modified Free Enterprise Economy The United
to locate the nearest recycling centers. Find out the
States has a modified free enterprise economy in
name, address, phone number, and operation hours of
which the government regulates some industries.
each service, and what services each provides. Use this
Do you think the government should play a
information to create a database, making separate
smaller or larger role in regulating the American
fields for the materials, the locations, and the rebates
economy? Give reasons to support your answer.
paid for recycled items. Print and distribute your data-
base to the rest of the class.
Math Practice
Many people all over the world recycle their alu-
minum cans in order to help our environment. The
graph below shows the percentage of aluminum cans Making Predictions The table below depicts
that have been recycled over the years. Study the the median inflation rate for advanced
information presented in the graph, then answer the economies, developing countries, and coun-
tries in transition for selected years. Study the
questions.
table, then answer the questions that follow.

Recycling 1997 1998 1999 1980“89 1990“99
Countries in 14.8 11.0 7.7 1.2 165.6
Transition
Developing 5.6 4.8 4.1 9.9 8.4
Countries
21/33
13/20
16/25
11/20 1/2 Advanced
1.7 2.1 2.1 6.9 2.8
Economies
1/4
1/6
1974 1978 1982 1986 1990 1994 1998 Source: World Economic Outlook
Source: The Aluminum Association, Inc.
1. Which economies do you predict to main-
tain a relatively low rate of inflation? Why
do you think this is the case?
1. During which year was the largest percentage of
2. If trends continue, do you project the
aluminum cans recycled?
median inflation rate for developing coun-
2. In 1974, 2.3 billion cans were recycled. Write a for- tries to rise, decrease, or stay at about the
mula to show the total number of cans consumed same level? Why?
during that year.
Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.

CHAPTER 20: GLOBAL ECONOMIC CHALLENGES 565
REFERENCE ATLAS
World Political A2
United States Political A4
World Land Use A6
United States Land Use A8
World GDP Cartogram A10
World Population Cartogram A12




ATLAS KEY

Ice cap
Tu
Ev



n




ra
d
er
g
re
M




n
e
ix




fo
Mountai


ed




re
st
fo
re




st
Gr




Oceans
ns

as




Seas
s
l
a




n
d

D e s e r t

SYMBOL KEY
Canal Depression Below Sea Level Lava
Claimed Boundary Elevation Dry Salt Lake Sand
International Boundary National Capital Lake Swamp
Towns Rivers




REFERENCE ATLAS A1
1 2 3 4 5 6 7 8

150°W 120°W 90°W 60°W 30°W
A A R C T I C
s
th Is la n d
E li z a b e
Queen
GREENLAND
Chukchi
ea
Sea Beaufort (KALAALLIT NUNAAT) S
Den.
Baffin
Sea




nd
RUSSIA
Bay




la
Mackenzie
Yukon




en
Baffin
Great
ALASKA




re
60°N Island
Bear Lake
U.S.


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