Marketing Ch. 4

World Economics

What is an Economy?

• The way in which the nation makes economic choices.– The choice is how do we use our resources to

produce and distribute goods and services.

Resources/Factors of Production

• These are the things used in producing goods and services– Consist of land, labor, capital and

entrepreneurship.

Factors of Production

• Land– Everything on the earth that is in its natural state– Includes everything contained in the earth and

found in the sea• Labor– Refers to the people that work • Full-time and part-time workers

Factors of Production

• Capital– Money needed to start and operate the business– Goods used in the production process– Factories, office building, and tools– Raw materials– Infrastructure (roads, ports, sanitation facilities

and utilities)

Factors of Production

• Entrepreneurship– People who are willing to risk their time and

money to run a business.– Organize factors of production to create the goods

and services desired in our economy

Scarcity

• Difference between wants and needs on one hand and the available resources on the other hand.

• Forces everyone to make CHOICES

Basic Economic Questions

1. What goods and services should be produced?

2. How should we produce those goods and services?

3. For whom should the goods and services be produced?

Three Economic Systems

• Market Economy (Captialist)• Command Economy (Planned)• Mixed Economy

Market Economics

• No government involvement in economic decisions

• The market answers the three economic questions

• Consumers decide what to produce, how to produce it, and those with more money buy more goods and services.

Command Economy

• The government answers the three economic questions.

• Dictator decides what will be produced• Government runs all business• Government decides who will get what

product.• Nation shares equally

Mixed Economy

• Combination of both market and command economic systems

• All economies in the world today are mixed– Classification now is based on how much the

government is involved• Capitalism• Socialism• Communist

Capitalism

• Practice democracy• Characterized by private ownership of

businesses and marketplace competition• Examples are US and Japan

Socialism

• Most countries today• What makes it different is the amount of

government involvement• Government tries to reduce the difference

between the rich and the poor• Key industries are run by the government• Idea is to keep prices low and provide

employment for everyone

Socialism

• Country tends to have more social services– Medical care is free along with education– Paid for by the businesses and individuals pay

taxes– People tend to pay higher taxes– Examples: Germany, Great Britain, Sweden,

Austria, and France

Communist

• Countries have totalitarian form of government

• Government runs everything in one party• Everyone shares common economic and

political goals• Those able to work are assigned jobs• Examples are: Cuba and North Korea

Privatization

• Process of selling government-owned business to private individuals

• Why do the governments sell the businesses?

When is an economy successful?

• Nations look to see how they are doing– They look at economic measurements– They look at the business cycle– Standard of Living

Economic Measurements

• Productivity– Is the output per worker hours• Measured over a period of time (week, month, year)

– Ways in which to increase productivity• Invest in new equipment or facilities

– Allows workers to work more efficiently

• Provide additional training or financial incentive• Reduce the work force and increase responsibility

Economic Measurements

• Gross Domestic Product (GDP)– Keeping track of an entire nations production

output– It is a measurement of the goods and services

produced using labor and property located in the country

• Gross National Product (GNP)– Looks at what's produced in this country and

abroad by our companies

Economic Measurement

• Standard of Living– Is a measurement of the goods and services that a

nation's people have– Reflects the quality of life– Inflation

• Rising prices• When prices rise, the money people have does not get

them as much• Government raises interest rates which reduces

everyone’s ability to buy– Opposite would be deflation

Economic Measurement

• Standard of Living– Consumer Price Index (CPI)• Measures the change in price over a time of goods and

services used by the average household

– Unemployment• Charts the number of people will and able not working

The Business Cycle

1. Prosperity– Period of economic growth– Low unemployment– Increase in output of goods and services– High consumer spending

The Business Cycle

2. Recession– Period of economic slowdown– Unemployment begins to rise– Fewer goods and services are produced– Consumer spending decreases

The Business Cycle

3. Recovery– Period of renewed economic growth following a

recession or depression– Reduced unemployment– Increased consumer spending– Moderate expansion by businesses

The Business Cycle

4. Depression– Period of prolonged and deep recession– Consumer spending is very low– Unemployment is very high– Production of goods and services are down

significantly– Poverty results because people are out of work

Government Influences

• Taxation has a strong bearing on what happens in an economy

• Interest rate control spending