Transcript traditional economy

 Every society must deal with providing goods and services for its
people
 Each society must also develop an economic system that can decide
how to use the limited resources of that society as well.
 Three basic questions must be answered:
1) What goods and services will be produced?
2) How will goods and services be produced?
3) Who uses the goods and services that are produced?
• In a traditional economy, most of the economic decisions
are made based on custom and on the habit of how such
decisions were made in the past.
• Goods and services are exchanged instead of using cash as
a payment in a traditional economy
• This is known as bartering
• As areas become more urbanized, however, bartering gives
way to cash as payment.
• In the Middle East, traditional
economies can still be found in rural
areas of many countries in this region
• No country today can be described as
having a traditional economy
A command economy is one in which government planning
groups make most of the economic decisions for the
workers
This group decides which goods and services should be
produces, as well as prices for the goods and wages paid to
the workers
No individual could decided to start a new business
The government decided what and where to produce the
goods.
The government decides what jobs the workers do and
where the goods produced would be sold
 The third basic type of economic system is a market economy.
 In a market economy, economic decisions are made by individuals
who decide what to produce and what to buy
 Other names for a market economy are capitalism, free enterprise,
or laissez-faire (French phrase that means to allow them to do as
they please)
 Individuals who want to begin their own business may do so - they
take economic risk as they invest in their new business
 If new businesses are successful, the people who organized and
funded it will be successful and make a profit
 If the business fail, the investors will lose money
Today, no countries in the world have economic systems
that are purely traditional, purely command, or purely
market systems
India is a good example of a mixed economy in Asia
The government makes some decisions about agriculture
and industry, but free enterprise and entrepreneurship are
very common.
Nearly all countries today have mixed economies – they
have characteristics of a free market and free enterprise as
well as some government planning and control
Not every country can produce all of the
goods and
services it needs
Because of this, countries specialize in producing those goods and
services they can provide best and most efficiently
They look for others who may need these goods and services so they
can sell their products
The money earned by such sales then allows the purchase of goods
and services the first county is unable to produce
In international trade, no country can be completely self-sufficient
(produce all the goods and services it needs)
Specialization creates a way to build a profitable economy and to
earn money to buy items that cannot be made locally
•Some countries in Southwest Asia are very rich in oil and natural gas,
but they lack farmland and the ability to produce enough food
•Saudi Arabia is able to specialize in the production of oil and natural gas
and sell these products at great profit on the world market
•The money earned in this trade can then be used to purchase food and
the technology needed to make their agriculture system more efficient
•Israel has little in the way of oil wealth, but they have become leaders
in agricultural technology even though they have a limited supply of
land suitable for farming
•They can sell this technology to earn the money to supplement their
limited production of food
Israeli Desert cabbage
Trade barriers are anything that slows down or prevents one country
from exchanging goods with another
Some trade barriers are put in place to protect local industries from
lower priced goods made in other countries
Other times trade barriers are created due to political problems
between countries
Trade is stopped until the political issues are settled
A tariff is a tax placed on goods when they are brought into (imported)
from one country to another country
The purpose of a tariff is usually to make the imported item more
expensive than a similar item made locally
This sort of a tariff is called a protective tariff because it protect local
manufacturers from competition coming from cheaper goods made in
other countries
A quota is a different way of limiting the amount of foreign goods that
can come into a country
A quota sets s specific amount or number of a particular product that
can be imported or acquired in a given period of time
A third type of trade barrier is called an embargo
An embargo is when one country announces that it will no longer
trade with another country in order to isolate the country and cause
problems with that country’s economy
Embargoes usually come about when two countries are having
political disputes
Embargos often cause problems for all countries involved
The US currently has embargos against Cuba, Iran, & North Korea
An example is when OPEC launched an oil embargo in 1973 against
nations that supported Israel in the Yom Kippur War
$Most of the countries in Asia have their own type of currency (money).
$In order for them to pay for goods as they trade with each other, they
have to establish a system of changing from one type of currency to
another
$This system is know as an exchange rate
$They also have to be able to exchange their currencies with those used
by other countries around the world
Human capital means the knowledge and skills that
make it possible for workers to earn a living producing
goods
or services
The more skills and education workers have, the
better they are able to work without mistakes and to
learn new jobs as technology changes
Companies that invest in better training and education for their
workers generally earn more profits
Good companies also try to make sure working conditions are safe
and efficient, so their workers can do their jobs without risk
Companies that have invested in human capital through training and
education are most likely to have profitable businesses and more
satisfied workers than companies that do not make these investments
Countries where training and education are easily available often
have higher production levels of goods and services, therefore higher
gross domestic product, than countries that do not offer these
opportunities
Israel has wide access to education and an economy that depends on
technology industries to make up for the country’s lack of natural
resources
Many Israelis work in industries related to medical technology,
agricultural technology, mining, and electronics
They also have highly developed service industries (businesses that
supply the needs of the rest of the working population)
Israeli GDP is very high because they have invested heavily in their
human capital
Saudi Arabia’s main industry is as an exporter of oil (petroleum)
The technology involved in the oil industry is complicated and
requires well-trained and educated labor force
Saudi Arabia also has enormous building projects which require
investment in human capital
By contrast, some Saudi citizens still practice traditional economic
activities such as farming and herding animals
Because oil is such an important part of the world’s economy, the
Capital goods (the factories, machines, and technology that people
use to make products to sell) are important to economic growth.
Advanced technology and the organization of this technology into
factories where many workers can work together increases production
and makes the production more efficient
Producing more goods for sale in a quicker and more efficient way
leads to economic growth and greater profit
This greater profit leads to a higher GDP
Middle Eastern countries have invested heavily in
Capital
Goods in such areas as oil production,
communications, and the
defense industry.
Distribution of natural resources throughout Asia plays a
major part in determining the type of work people do and
how comfortable they are able to live
A natural resource is something that is found in the
environment that people need
Water, trees, rich soil, minerals, and oil are all examples of
natural resources
One of the most valuable resources in this part of the world
is rich farmland
Literacy, or the ability to read and write, has a big effect on the
standard of living of a country
Those who cannot read or write have a very difficult time finding
decent jobs
Lack of education also prevents many young people from becoming
the engineers, doctors, scientist, or entrepreneurs that modern
economies need in order to bring improvements to their countries
In many parts of the world, education is only available to those who
can afford to pay for it themselves
In those countries, the literacy rate is often quite low
Countries that have stronger economies usually make money
available so that anyone who wants an education can go to school
One way to measure the standard of living is the Gross Domestic
Product, or GDP
The GDP is the value of all goods and services produced within a
country in a given year and converted into US dollars for comparison
When divided into a value per capita (or per person), it can be used as
a measure of the living conditions in a country
The higher the GDP value, the better the living conditions in the
country
Part 4 - Middle East Economics
• There are many different types of economic systems
in the Middle East.
• Many countries have mixed economies with different
levels of government control.
• Some countries are less developed than others in the
region.
• Middle Eastern countries have thrived on producing
exports to other countries.
• Cash crops have included grain, silk, and cotton.
• For the last sixty years, the region’s main export has
been oil.
• The region imports much of its food and other
essential products.
Oil
• Oil is one of the most important and valuable natural resources in the
Middle East
• Oil and Natural gas are called fossil fuels, which mean they were created
when plants and animals that lived centuries ago decayed underground
• Oil and natural gas are also considered non-renewable natural resources,
meaning they cannot be replaced once they are taken out of the ground
• Most of the world's industrial nations depend on a steady supply of oil and
natural gas
• The US has to import nearly half of all the oil it uses, almost 18 million
barrels every day
• Many countries of the Middle East have become very rich over the past 50
years as the world demand for oil and gas has increased
• Over half of the world’s known oil reserves come from the Middle East
Israel
• Israel has a mixed economy that is also technologically
advanced.
• The Israeli government and private Israeli companies own and
control the economy.
• Israel does not have many natural resources.
• Israel has to import grain, oil, military technologies, and many
other goods.
• The country is a producer of high-tech equipment, electronics,
biomedical industries, and cut diamonds.
• The service industry accounts for much of Israel’s economy –
areas such as insurance, banking, retail, and tourism account
for over half of it.
• Israel relies heavily on US economic and military aid.
Saudi Arabia
• Saudi Arabia also has a mixed
economy but leans toward
government control..
• Saudi Arabia’s main export is oil.
• The oil industry has made the
Saudi royal family quite wealthy.
• In fact, several members of the
royal family are among the
wealthiest people in the world.
• Oil accounts for well over half if
the country’s economy.
• Oil funds the country’s
education, defense,
transportation, health,
and housing.
• The government is trying to encourage more private businesses to
boost the economy and decrease the countries dependence on oil.
Iran
• Iran has great oil wealth, like Saudi Arabia, through there is
also a more mixed economy that has grown in spite of
government attempts to keep tighter control
• Iran’s command economy
has
not been very efficient
in
recent years
• Even though there is oil
wealth,
many Iranians do
not share
in the money as
much of it goes
toward the
military
Turkey
• The government of Turkey controls
the country’s economy.
• Turkey’s economy, however, is not
entirely a command economy.
• A large part of the country’s economy
is based on farming.
• The Turkish government has had
disputes with other
over its use of natural
such as the Euphrates
• Clothing and textiles are the countries
industries.
• The service industry makes up about
half of Turkey’s economy, as it
does Israel's economy.
many
countries
resources,
River.
major
Saudi Arabia
• Some gulf countries invest
money to make their
economies
more diverse.
• In the last few decades, Saudi
Arabia has begun
encouraging the
development
of industries
other than
oil in order to
make its
economy
stronger.
• In 1976, the Saudi government crated the Saudi Basic Industries
Corporation.
• The SBIC invests in capital goods.
• These capital goods have made the country a steady producer of
steel, industrial gasses, plastics, and petrochemicals.
Economic Growth
Israel
• Economic growth has been difficult
to achieve for many Middle
Eastern countries.
• War is a major threat to the region’s
economies.
• For example, both war and a large number of immigrants present
challenges to the Israeli economy.
• The Israeli government has taken control of certain economic
activities in order to address these problems.
• The Israeli government controls most activities related to
agriculture.
• This helps the nation’s economy because the county’s natural
resources are so limited.
Iran
• Wars can also influence a country’s economy by influencing what the
country decides to produce.
• Iran’s war with Iraq led Iran to put more money into its military industries.
• The number of people without jobs is Iran is high.
• The country provides less protection for its human capital than other
countries do.
• For example, Iran does
not have private
labor unions to
protect
workers.
• It is a mixed economy
on the side of
government
control of oil and
major industries.
The 1973 Oil Crisis
• Some trade barriers are political.
• Sometimes governments limit trade with other countries because
they disagree with the actions or policies of those countries.
• This is a trade barrier designed to purposefully hurt the economy
of another country.
• The 1973 oil crisis is one example of such a trade barrier.
• The 1973 oil crises began on October 17, 1973.
• OPEC announced that its member nations would no longer ship
oil to countries that had aided Israel in its recent war with Egypt.
• Those countries included the US and many in Europe.
• OPEC raised the price of oil 70%.
• As a result, the price of gasoline in the US quadrupled over
several months.
• These actions had a large impact on industrialized nations
because of their growing dependence on oil and gas.
• Western countries had been used to cheap and plentiful
oil resources before the crisis.
• Oil consumption had doubled in the US.
• At the time, the US was using about 1/3rd of the world’s
energy.
• The crisis caused the value of the US dollar to drop.
• It also had a widespread negative impact on
the world economy.
• OPEC started shipping oil to Western
nations again in 1974.
• Western economies began to get stronger again.