Transcript Economics

ECONOMIC CONCEPTS
FOR AN INTERNATIONAL
MARKETER
YOU WILL LEARN TO….
• Explain the
relationship between
international
marketing and
economics.
• Understand that
economic choice is a
result of unlimited
needs and wants
combined with
limited resources.
• Discuss the importance
of specialization,
comparative advantage,
and opportunity costs
in world trade.
• Interpret a production
possibilities curve.
• Define several
economic indicators
and understand how to
use to evaluate the
strength and stability of
a nation’s economy.
WHY STUDY ECONOMICS?
• Global marketing is
all about economics!
• Economics is the
study of how
societies make
choices among
unlimited wants and
needs when the
resources to satisfy
them are limited.
UNLIMITED WANTS AND NEEDS
• Human needs and wants
are UNLIMITED!
• Basic needs: food, shelter
and clothing
• Wants: goods and
services people would like
to have but could do
without.
BUT I WANT IT!
• There are no limits to
what people may want.
• When you satisfy a
need or want,
something else is
always wanted.
• What people need and
want and the choices
they make to satisfy
those needs and wants
is the heart of
economics.
LIMITED RESOURCES
• A person can’t
have everything
they want.
• Resources are
those things used
to satisfy human
needs and wants.
• Factors of
Production: Land,
labor, capital and
entrepreneurship
FACTORS OF PRODUCTION
(RESOURCES)
• Land – minerals, space,
soil and productive
capacity of a given area
• Labor- mental and
physical abilities
available in a work
force
• Capital – buildings,
equipment, factories
capable of producing
what is desired
• Entrepreneurship – the
person who organizes
the business and
assumes the risks of
operation
SCARCIT Y AND CHOICE
• Unlimited needs and wants
combined with limited
resources lead to scarcity.
• How much is wanted vs.
how much is available
• Choice is the act of
selecting among
alternatives.
• Economics is about making
choices.
WHY DO PEOPLE TRADE?
• Each society
must evaluate
resources and
make decisions
on how to use
those that are
limited.
SPECIALIZATION
• Specialization is the key
to satisfying human needs
and wants in a global
trading environment.
• Specialization means
trading partners use their
resources to produce
items they can best
produce. Then they trade
for items they cannot
produce as well.
COMPARATIVE ADVANTAGE VS.
ABSOLUTE ADVANTAGE
• Absolute advantage
means a country can
produce a good or
service more efficiently
than any other country.
• Comparative advantage
is the principle that a
country should
specialize in producing
the goods or services at
which it is relatively
most efficient.
THE LAW OF COMPARATIVE
ADVANTAGE
• When each nation
produces what it is
best suited to
produce and trades
for what it is less
suited to produce,
the total amount of
world trade rises.
TRADE-OFFS AND OPPORTUNIT Y COST
• With every decision a
nation makes, there is
a trade-off.
• Trade-Offs: what a
person, business or
nation has to give up to
get something else.
• Opportunity Cost: the
value of the alternative
that is not chosen
when a decision is
made about allocating
available resources.
PRODUCTION AND RESOURCES
• Production
Possibilities Curve
– a graphic
illustration of the
combination of
output that can be
produced if all
resources are used
efficiently.
ECONOMIC INDICATORS
• Economic indicators are
measures that chart the
progress of a nation’s economy.
• When evaluating the economies
of potential trading partners, it
is helpful to analyze these
economic indicators.
GROSS NATIONAL PRODUCT AND
GROSS DOMESTIC PRODUCT
• GNP (Gross National
Product)– The total
market value of all
final goods and
services produced by a
nation in one year.
• GDP (Gross Domestic
Product)– All
production within a
nation’s border regardless of which
nation owns the
companies.
PER CAPITA GDP
• The amount of
product
produced within
a nation’s
borders, per
person in a year
is the per capita
GDP.
BUSINESS CYCLES
• A Business Cycle is
the pattern of up-anddown motion in the
total economic output
of a nation.
• Business Peak
• Economic Contraction
• Business Trough
• Economic Expansion
BUSINESS PEAK
• High levels of
economic activity
• High employment
• Healthy sales of
goods and services
• Successful Period
• The late 1920’s &
1990’s
ECONOMIC CONTRACTION AND A
BUSINESS TROUGH
• Contraction leads to
a business trough
• Business slows down
• Low levels of
economic activity
• High unemployment
• Slow sales of goods
and services
• Recession
• Depression
ECONOMIC EXPANSION
• Leads out of
the trough to
the peak
• Cycle repeats
itself
RECESSION VS.
DEPRESSION
• Recession – GNP or GDP
declines for six to
eighteen months.
• Temporary economic
decline
• Depression – A sharp
decline in economic
activity for a long time
(more than two years).
WORLD EXPORT/IMPORT
GROWTH
1995 $ millions
500,000.00
400,000.00
300,000.00
200,000.00
100,000.00
1996
1997
Countries
Other
Japan
Imports
Other
Japan
1998
Exports
Dollars
International Trade
1999
2000
• There has been
rapid growth in
exports and
imports in the last
40 years.
• Countries are more
interdependent.
• Economic slowdown
in one country
causes economic
slowdowns in other
countries.
COMPOSITE INDEXES OF ECONOMIC
INDICATORS
• Economists must look at a
number of figures to
measure the economic
health of a nation.
• Composite indexes of
economic indictors are made
up of several different
measures of a nation’s
economy.
LEADING INDICATORS
• Leading indicators dictate the future of the
economy.
• Average workweek of production workers
• Initial claims for state unemployment
compensation
• New manufacture orders
• Building permits for new private-housing
• Common stock prices