Transcript How to produce

Economics and
the Middle East
Standard
• Middle East:
•
• SS7E5 The student will analyze different economic systems.
• a. Compare how traditional, command, and market economies
answer the economic questions of (1) what to produce, (2)
how to produce, and (3) for whom to produce.
Command Economy
• Command Economy: In a command economy, the central
authority (government) is in charge and makes all economic
decisions. The most important aspect of this type of economy
is that all major decisions related to the production,
distribution, commodity and service prices, are all made by
the government or central authority.
Command Economy
• What to produce – Whatever the government says to produce
• How to produce – However the government tells you to
produce
• For whom to produce – For whomever the government tells
you to produce (ideally the entire society)
Market Economy
• Market Economy: In a market economy, consumers are in
charge and make economic decisions by spending money on
goods and services they need/want. In a market economy,
national and state governments play a minor role. Consumers
and their buying decisions drive the economy. The
assumptions of the market play a major role in deciding the
right path for a country’s economic development.
Market Economy
• What to produce – Whatever consumers say to produce
• How to produce – However the consumers tell you to produce
• For whom to produce – For whomever the consumers tell you
to produce
Traditional Economy
•
• Traditional Economy: In a traditional economy, things are
done as they have been done in the past (traditionally). The
economic system in which resources are allocated by
inheritance, and which has a strong social network and is
based on primitive methods and tools. It is strongly connected
to subsistence farming.
Traditional Economy
• What to produce – Whatever ritual, habit or custom dictates
• How to produce – However ritual, habit or custom dictate
• For whom to produce – For whomever ritual, habit or custom
dictate
Standard
• SS7E5 The student will analyze different economic systems.
• b. Explain how most countries have a mixed economy located
on a continuum between pure market and pure command.
Since no country has a pure command or pure market economic
system, most economies combine aspects of both of these pure
economic systems, albeit to different degrees. Real economies
fall somewhere between the two extremes.
ECONOMY
• Since no country has a pure command or pure market
economic system, most economies combine aspects of both
of these pure economic systems, albeit to different degrees.
Real economies fall somewhere between the two extremes.
What is a mixed economy?
• What is a mixed economy? A mixed economy blends
components of two or more of the following economic
systems to varying degrees: traditional, market, and command
Mixed Economy
Most countries have a Mixed Economy. However, a Mixed
Economy is not an economic system but rather a blending of
two different types of systems.
STANDARD
• SS7E5 The student will analyze different economic systems.
• c. Compare and contrast the economic systems in Israel, Saudi
Arabia, and Turkey.
ISRAEL
(1) What to produce?
• A large portion of Israel’s GDP comes from high tech
manufacturing, financial services, and agriculture.
• (2) How to produce?
• Israel has substantial government ownership of business, but
is gradually privatizing companies.
• (3) For whom to produce?
• The private sector produces goods and services for domestic
and international markets based on the market price system.
c
i
m
o
n
Eco tems
Sys
Israel
68%
Place on the continuum: Israel would fall slightly
to the market side of center on the continuum.
Pure
Command
Pure
Market
Place on the continuum: Israel would fall slightly to the market side of center on the
continuum (you do NOT need to memorize the exact number)
Saudi Arabia
• (1) What to produce?
• Saudi Arabia is the world’s leading producer of oil. The Saudi
government continues to invest in industrial production. They are a
leader in petrochemicals, mining, and refining.
• (2) How to produce?
• Over 95% of the oil industry in the country is operated by the
government. Most other major industries have significant
government involvement.
• Saudi Arabia relies heavily on specialized labor from other countries.
Estimates are that a third of the labor force falls in this category.
• Since the 1980s, the Saudi government has been trying to increase
private ownership of business and encourage more joint ventures
with private foreign companies.
• (3) For whom to produce?
• One third of Saudi Arabia’s GDP is based on exports to other
countries. (This is due to the economy’s reliance on the oil sector.)
SAUDI ARABIA
• Since the 1980s, the Saudi government has been trying to
increase private ownership of business and encourage more
joint ventures with private foreign companies.
• (3) For whom to produce?
• One third of Saudi Arabia’s GDP is based on exports to other
countries. (This is due to the economy’s reliance on the oil
sector.)
ic
m
o
n
o
Ec tems
Sys
Saudi
Arabia
64%
Place on the continuum: Saudi Arabia would fall
to the command side of center on the continuum.
Pure
Command
Pure
Market
Place on the continuum: Saudi Arabia would fall to the command side of
center on the continuum.
Turkey
• (1) What to produce?
• Turkey has a diversified economy with large service,
manufacturing, and agricultural sectors.
• (2) How to produce?
• Since the late 1980s, Turkey has gradually moved from a
government directed economy to more private enterprise.
• (3) For whom to produce?
• One fifth of Turkey’s production is exported. The remainder is
consumed by domestic consumers and the government
ic
m
o
n
o
Ec tems
Sys
Israel
68%
Turkey
62%
Saudi
Arabia
64%
Pure
Command
Pure
Market
Place on the continuum: Turkey would fall to the left of Saudi Arabia and
Israel on the market side of the continuum.
STANDARD
•
• SS7E6 The student will explain how voluntary trade benefits
buyers and sellers in Southwest Asia (Middle East).
• a. Explain how specialization encourages trade between
countries.
“Do what you do best; trade for the rest.”
Specialization - Specialization occurs when one
nation can produce a good or service at a lower
opportunity cost than another nation.
Specialization encourages trade and can be a
positive factor in a country’s economy. For
example, if a country specializes in oil, they can
trade oil for a certain food that another country
specializes in so that both countries benefit.
iy
Over-Specialization
Over-Specialization – Examples of over-specialization include
one-crop economies and generally having a lack of
diversification. This can negatively impact a region’s economy.
What if a country over-specializes in oil and then runs out of oil?
What if a country over-specializes in corn and then a scientific
study comes out that says corn causes cancer? If something
happens to the one crop or resource a country relies on then
the country’s entire economy could potentially collapse.
STANDARD
• SS7E6 The student will explain how voluntary trade benefits
buyers and sellers in Southwest Asia (Middle East).
• b. Compare and contrast different types of trade barriers, such
as tariffs, quotas, and embargos.
Tariff
• A tariff is a tax placed on goods that one nation imports from
another.
• Many nations use tariffs to protect their industries from foreign
competition.
• Tariffs provide protection by acting to raise the price of imported
goods.
• Thus, tariffs encourage domestic firms to increase their production,
and consumers are forced to pay higher prices for the protected
goods.
• Can you think of an example?
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• _______________________________________________________
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Quota
• A quota sets a limit on the amount of certain goods that can
be imported into a country.
•
• Import quotas offer another means of protectionism.
• quotas tend to be more effective than protective tariffs, which
do not always stop consumers who are willing to pay a higher
price for an imported good.
• Can you think of an example?
__________________________________________________
•
• __________________________________________________
_________________________
Embargo
• An embargo is an order designed to stop the movement of goods.
•
• An embargo, issued by the government of one country, may restrict
or suspend trade between that country and another nation.
• A government may impose an embargo to hamper (make progress
difficult) the military efforts of another government.
• Sometimes a government imposes an embargo to express its
disapproval of actions taken by another government. The embargo
is intended to pressure the offending government to change its
actions.
• Can you think of an example?
__________________________________________________
•
• _______________________________________________________
____________________
Import quotas
• Import quotas offer another
means of protectionism.
• These quotas set a limit on the
amount of certain goods that can
be imported into a country and
tend to be more effective than
protective tariffs, which do not
always stop consumers who are
willing to pay a higher price for an
imported good.
Barriers to Trade
• A tariff is a tax placed on goods that
one nation imports from another.
• Many nations use tariffs to protect
their industries from foreign
competition.
• Tariffs provide protection by acting to
raise the price of imported goods.
• Thus, tariffs encourage domestic
firms to increase their production,
and consumers are forced to pay
higher prices for the protected goods.
STANDARD
•
• SS7E6 The student will explain how voluntary trade benefits
buyers and sellers in Southwest Asia (Middle East).
• c. Explain the primary function of the Organization of
Petroleum Exporting Countries (OPEC).
OPEC
OPEC – OPEC stands for the Organization of Petroleum Exporting
Countries. The role of this organization is to influence the price
of oil on world markets. If OPEC wants the price of oil to
increase on world markets, they will slow production of oil. If
OPEC wants the price of oil to decrease on world markets, they
will increase production of oil.
OPEC
• You do not need to know all of the members of OPEC however
you do need to know that not all oil producing nations are
OPEC members, nor are all OPEC members Middle Eastern
countries.
•
STANDARD
• SS7E6 The student will explain how voluntary trade benefits
buyers and sellers in Southwest Asia (Middle East).
• d. Explain why international trade requires a system for
exchanging currencies between nations.
EXCHANGE RATES
• Exchange Rates - exchange rates provide a procedure for
determining the value of one country’s currency in terms of
another country’s currency. Without a system for exchanging
currencies, it would be very difficult to conduct international
trade.
•
• Before people from different countries can buy or sell
anything to each other, they have to solve a basic problem.
•
• Buyers have to be able to change their money from their
country's currency to the seller's national currency. This is
called "foreign exchange."
•
EXCHANGE RATES CONT.
• Each currency, whether it's the US dollar or the Haitian
gourde, has a value in terms of other currencies. This is the
"exchange rate."
•
• Without a reliable supply of foreign exchange in each country,
and without relatively stable exchange rates, world trade
would drop drastically.
STANDARD
• SS7E7 The student will describe factors that
influence economic growth and examine their
presence or absence in Israel, Saudi Arabia,
and Iran.
•
What influences economic growth?
• There are four factors that most influence economic growth in
a nation. These are:
• Land - Land provides the basic raw materials--vegetation,
animals, minerals, fossil fuels--that are inputs into the
production of goods (natural resources).
• Labor - Labor is the resource that does the "hands on" work of
transforming raw materials into goods.
• Capital (2 kinds; human and physical – defined below)
• Entrepreneurship – defined below