Transcript CHAPTER 2 Our Global Economy

CHAPTER
2
Our Global Economy
2-1
2-2
2-3
2-4
2-5
Economics and Decision Making
Basics of Economics
Economic Systems
Achieving Economic Development
Resources Satisfy Needs
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LESSON 2-1
Economics and Decision Making
GOALS
 Describe the basic economic
problem.
 List the steps of the decisionmaking process.
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The Basic Economic Problem
 Scarcity refers to the limited resources available to
satisfy the unlimited needs and wants of people.
 Ex. A country must decided whether to grow its own food
or to import agricultural products so its workers can
produce other items
 Studying how people, countries or a company chooses
to use its limited resources to satisfy their unlimited
wants and needs is called economics.
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Making Economic Decisions
 Coping with scarcity
 Making choices
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The Decision-Making Process
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The Decision Making Process
 Step 1-Define the Problem-What do I need or want?
 Step 2-Identify the Alternatives-What are the different ways my
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problem can be solved?
Step 3-Evaluate the Alternatives-What are the advantages and
disadvantages of each of the choices available?
Step 4-Make a choice-Based on the advantages and
disadvantages, which would be the best choice?
Step 5- Take action on the choice-What needs to be done to put
the decision into action?
Step 6-Review the decision-Did your decision solve the problem?
As time goes by, what different actions might be necessary? Were
there consequences you did not predict when you evaluated the
alternatives?
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Example #1
#1. How can Benson Electric Company continue to
increase its sales over the next five years?
Right now, the company only sells electronic products in
the US.
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Step 2
 Increasing Advertising to attract new customers
 Reducing prices to attract new customers
 Selling products online and e-mailing information to
customers in other countries
 Shipping products to sell in other countries
 Producing and selling products in other countries
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Step 3
 Each has benefits; you have to list risks and costs with
each choice
 Ex. Reducing prices may increase the number of
customers but could reduce total dollar sales. The cost
of producing products in another country could be
greater than the money earned from additional sales.
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Step 4
 Every time a choice is made something else is given up.
So, once Benson Electric selects a course of action, it
probably will not be able to choose other alternatives.
 Opportunity Cost-most attractive alternative given up
when a choice I made.
 For example, your decision to go to college and not work
and make money; the decision to continue your
education is likely to benefit you throughout your life with
higher earnings.
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Step 5
 Put choice into action
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Step 6
 Review decision in the weeks, months,
and years that follow to determine whether
it needs to be changed or if other
decisions need to be made. Ongoing
process.
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With a partner:
 Given the two problems below give me a list of three
solutions for that particular problem (include the six-step
problem solving model)
 #1. A computer store is losing business to a competitor.
The competitor is selling imported software at a very low
price.
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 #2. A food company is having trouble selling its frozen
products in other countries because it is very expensive
to transport frozen foods.
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LESSON 2-2
Basics of Economics
GOALS
 Describe how the market sets
prices.
 Explain the causes of inflation.
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Price-Setting Activities
 Price is the most visible economic factor you encounter every day.
Determining prices involves two main elements-supply and demand.
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 Supply-is the relationship between the amount of a good or service
that businesses are willing and able to make available and the price.
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 For Example: many years ago only a couple of companies made
baseball and other sports cards for collecting. As these cards
became more popular, other companies got involved in the sports
card business.
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Price Setting Activities
 Demand-which is the relationship between the amount of a good or
service that consumers are willing and able to purchase and the
price.
 Price declines, demand increases – law of demand
 Price increase, supply increase-because the business can make
more money
 The point at which the supply and demand cross is the market
price.
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Market Price Is Set by Supply and
Demand
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Changing Prices
 Inflation
 Demand-pull inflation
 Cost-push inflation
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Inflation
 Prices constantly change. A common economic concern is
continually rising prices.
 An increase in the average prices of goods and services is known as
inflation.
 Inflation allows people to buy fewer goods and services. Inflation is
an indication of the buying power of a country’s monetary unit (such
as US Dollar, British Pound, and Japanese Yen).
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Demand Pull Inflation
Inflation has two basic causes when
demand exceeds supply, prices go up this is
called demand-pull inflation. It can occur
when a government tries to solve economic
problems by printing more money.
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Cost-Push Inflation
 The other cause of inflation occurs when the expenses of a business
(such as cost of salary or raw materials) increases. This is called
cost-push inflation. Higher price charged by a company.
 Ex. Recently Zimbabwe, a 231,000,000 percent inflation rate
resulted from political turmoil and an economic collapse.
This is what type of inflation?
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LESSON 2-3
Economic Systems
GOALS
 Name the three main factors of
production.
 Understand how different countries
make economic decisions.
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Economic Resources Satisfy Needs
 Natural resources
 Human resources
 Capital resources
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Natural Resources
 Also known as land, these resources are
the raw materials that come from the
earth, from the water, and from the air.
Iron ore, gold, silver, agricultural products,
rivers, and oxygen are examples of natural
resources.
 These items are used in the production of
goods and services consumed by
individuals, businesses, and governments.
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Human Resources
 Also known as labor, these resources are
the people who work to create goods and
services.
 While technology has changed or
eliminated certain tasks previously
performed by people, new types of work
are continually being created.
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Capital Resources
 Also called capital, these resources
include buildings, money, equipment, and
factories used in the production process.
 These items are expensive and are used
over several years by business
organizations.
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Economic System
The economic choices
of a country relate to
three basic questions:
1. What goods and
services are to be
produced?
2. How should the
goods and services
be produced?
3. For whom should the
goods and services
be produced?
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Types of Economic Systems
 Command Economies
 the government or central planning committee
regulates the amount, distribution, and price
of everything produced. Referred to as
communism. Ex. Cuba
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Types of Economic Systems
 Market Economy
 those in which individual companies and
consumers make the decisions about what,
who and for whom items will be produced.
Referred to as capitalism. Ex. Japanese,
Australian, Canadian economies are market.
 Market economy consists of three things:
 Private property
 Profit motive
 Free, competitive marketplace
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Types of Economic Systems
 Mixed Economy
 blending of both economies. Referred to as
socialism. Political and economic system with
most basic industries owned and operated by
government with the government controlled
by the people as a whole. Ex. Sweden and
France.
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LESSON 2-4
Achieving Economic Development
GOALS
 Describe the factors that affect
economic development.
 Identify the different levels of
economic development.
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Development Factors
 Literacy level
 Technology
 Agricultural dependency
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Types of Development
 Industrialized countries
 the nations with the greatest power are
usually those with many large companies. Is a
country with strong business activity that is
usually the result of advanced technology and
a highly educated population.
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Infrastructure
Another factor that supports international trade
in industrialized countries is infrastructure.
Infrastructure-nations transportation,
communication and utility systems.
Countries include Canada, United Kingdom,
France, Germany, Italy, Japan, and the United
States
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Less-Developed Countries
 very low standard of living. A country with little economic
wealth and an emphasis on agriculture or mining.
Abundant resources and no technology to make use of
them. Most LD countries have annual incomes of
$1,000. Compared to US $30,000
 Results from inadequate housing, starvation, and poor health
care.
 Countries include Bangladesh, Cambodia, Chad, Haiti, Nepal,
and Sudan
 Industrialized Countries tend to assist LDC with the problems of
poor health care, limited natural resources, low literacy rates,
etc.
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Developing Countries
 evolving from less developed to industrialized. These
nations are improving educational systems, increasing
technology, and expanding industries. Referred to as
emerging markets.
 Countries include Argentina, Brazil, Ecuador, India, Kenya,
Hungary, Poland, South Africa, Turkey, Thailand, and Vietnam.
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Levels of Economic Development
LessDeveloped
Country
 Low literacy
 Limited
technology
 Agricultural or
mining
economy
Developing
Country
Industrialized
Country
 Improving
literacy
 Improving
technology
 Decreasing
dependence
on agriculture
or mining
 High literacy
 Modern
technology
 Industrial
economy
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LESSON 2-5
Resources Satisfy Needs
GOALS
 Discuss economic principles that
explain the need for international
trade.
 Identify various measures of
economic progress and
development.
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The Economics of Foreign Trade
 Buying and selling among companies in different
countries is based on two economic principles.
 Absolute advantage-exists when a country can produce
a good or service at a lower cost than other countries.
This situation usually occurs as a result of the natural
resources or raw materials of a country.
 For example, South American countries have an
absolute advantage in coffee production. Canada in
lumber sales, and Saudi Arabia in oil production.
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The Economics of Foreign Trade
 A country may have an absolute advantage in more than
one area.
 For example, a country may be able to produce both
computers and clothing better than other countries. The
world market for computers, however, might be stronger.
This means the country would better serve its own
interests by producing computers and buying clothing
from other countries. This is an example of the second
economic principle, comparative advantage.
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Measuring Economic ProgressGDP
 Think of a score a sporting event. International Business keeps
score as well. Various economic measures are used to evaluate and
analyze the economic conditions of a country.
 Gross domestic product (GDP)- measures the output of goods
that a country produces within its borders. It includes items
produced using foreign resources.
 Ex. The GDP would include automobiles manufactured in the United
States.
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Measuring Economic ProgressGNP
 Gross National Product (GNP)-measures the total
value of all goods and services produced by the
resources of a country. Same as GDP but also includes
the production of other countries using resources of the
country whose GNP is being measured.
 To get the real results you have to take the per capita of
each GDP and GNP because of the varying population
in each country.
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International Trade Activity
 Balance of Trade-is the difference between a country’s
exports and imports. When a country exports (sells)
more than it imports (buys) it has a favorable balance of
trade or a trade surplus.
 Vice Versa a trade deficit.
 Ex. In 2011, United Kingdom imported $645.7 billion and
exported $468.7 billion. (a trade deficit)
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International Trade Activity
 Because different nations have different monetary units,
a comparison of the value of currencies is required.
 Foreign Exchange Rate-is the value of one country’s
money in relation to the value of the money of another
country. Every day changes you can see changes occur
via newspaper or online.
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International Trade Activity
 When you buy more than your current income allows,
you go into debt. In the same way, when a country
continually has an unfavorable balance of trade, it owes
money to others.
 Foreign Debt-is the amount a country owes to other
countries. This effects a country by:
 Must use future income to pay for current and past spending
 Limits funds for improving infrastructure and for providing
services for its citizens in the future
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Other Economic Measurements
 Inflation (increase in prices) is measured in the United
States by the Consumer Price Index- (CPI).
 CPI-is a federal government report published by the
Bureau of Labor Statistics
 Unemployment Rate
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