ECONOMIC CONCEPTS FOR AN INTERNATIONAL MARKETER

Chapter 4

What you will learn…. 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 they can be used 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 WAAAANNTT IT!!!! There are no limits to

what people may want. When you satisfy a

need or want, you then want something else.

What people need and want, and the choices they make to satisfy those needs and wants, is the heart of economics.

Limited Resources

You can’t have everything you want!

Resources are those things used to satisfy human needs and wants.

Land, labor, capital and entrepreneurship (factors of production)

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

SCARCITY 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 its resources and make decisions on how to use those that are limited.

SPEICIALIZATION Specialization is the key

to satisfying human needs and wants in a global trading environment.

Specialization means trading partners use their resources to produce the things they can best produce. Then they trade for things 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 Opportunity Cost With every decision a

nation makes, there is a trade-off.

Trade-offs are what a person, business or nation has to give up to get something else.

Opportunity cost is 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.

0

500

1000

1500

2000

2500

3000

3500

a b c d

Porucpine PassUnderthe Falls

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 – The total

market value of all final goods and services produced by a nation in one year

GDP – All production within a nation’s borders, 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-and-down 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 Good Times!! The late 1920’s &

1990’s!

Economic Contraction and a Business Trough Contraction leads to a

business trough Business slow 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 months or more.

Depression – A sharp decline in economic activity for a long time (more than 6 months)

World Export/Import Growth 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.

International Trade

100,000.00200,000.00300,000.00400,000.00500,000.00

Expo

rts

Japa

n

Oth

er

Impo

rts

Japa

n

Oth

er

Countries

Dolla

rs

1995 $ millions

1996

1997

1998

1999

2000

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 – indicate the future of the economy– Avg. workweek of

production workers– Initial claims for state

unemployment compensation

– New mfg. Orders– Building permits for

new private-housing– Common stock prices