Political and Economic Analysis

Chapter 3

Analysis

Page 48-49: Read through the ad regarding evian Read “Analyze the Ad” and be prepared to talk

about the section of Market Talk Page 50-51

Read “Guide to the Photo” and be prepared to talk about the “Quick Think”

Economy

An economy is how a nation makes economic choices that involve how the nation will use its resources to produce and distribute goods and services (G & S) to meet the needs of its population

A country’s resources determine economic activities such as manufacturing, buying selling, transporting, and investing How has this changed over time?

What are the leading factors?

Resources

All things used in producing G’s & S’s

Factors of production when referring to resources Land Labor Capital Entrepreneurship

Factors of Production

Land Everything contained in

the earth or in the seas AKA Raw Materials

Used for making G’s & S’s that are marketed to customers

Crude oil, ore, gas Lake water and all living

things within it Trees, plants and soil

Best place for Skiing? Most produced oil? Best place for cocoa bean?

Labor All the people who work

Full and part-time workers Managers Professionals in the private

and public sector Companies invest in their

employees Creates an advantage over

other countries

Factors of Production

Capital Money to start and operate

a business Also includes goods used

in the production process Machinery, tools, computers Buildings Raw materials that have

been transformed into useful form (ie. Steel)

Includes infrastructure Physical development of a

country: roads, ports, sanitation, facilities, utilities

Entrepreneurship The skills of people who

are willing to invest their time and money to run a business Organize factors of

production to create the G’s & S’s that are part of an economy

The employers of a population

Scarcity

The difference between what consumers want and need and what the available resources are Forces nations to make economic choices US has an abundance of labor, capital, natural

resources and entrepreneurs However, several individuals live in poverty, thus

not all needs/wants are being met for ALL citizens Underdeveloped nations may not have as many

resources (ex: natural resources, minimal capital)

Economic Systems

Countries with different economic systems have different approaches when making decisions about the G’s & S’s it provides

The way nations answer three basic questions defines their economic system:1. Which G’s & S’s should be produced?

2. How should the G’s & S’s be produced?

3. For whom should the G’s & S’s be produced?

Economies

Market No government

Involvement in economic decisions

Individuals and companies own the means of production and businesses compete for consumers

What? Consumers- through

purchases How?

Businesses-most efficient way

For Whom? Consumers – Monetary

exchange

Command Full government

involvement in economic decisions

Government controls all factors of production

What? Dictator or gov. group

decides was is needed based on what they believe is important

How? Government controls all

employment opportunities, benefits, etc.

For Whom? Government decides who

will receive what is produced (generally for equality)

Mixed Individuals, companies,

and government involvement are present

US and Canada are considered mixed (amongst almost all) Government run

entities Laws and

Regulations Social Programs

Political Philosophies

Capitalism Characterized by

marketplace competition and private ownership of businesses

Great concern over its people and those who cannot care for themselves

Social Services However does not match

that of a socialist country Most frequently associated

with capitalism is democracy

Power should be in the hands of the people

US and Japan are classified as capitalist

Communism A social, political, and

economic philosophy in which the government, usually authoritarian, controls the factors of production

No private ownership of property or capital

Theory G’s & S’s are available to all,

therefore the society is classless

All are assigned jobs In theory: no unemployment,

all are paid, housed, fed, and are provided medical

Cuba & North Korea Losely, China, Loas, Vietnam

Socialism Originally referred to

system on its way to the communist ideal to a classless society

Most countries are defined as socialist have democratic political institutions Increased amount of

gov involvement than that of capitalism

More social services (ex. Free or low cost medical, pensions, elderly care

Government run key industries Canada, German,

Sweden

Economies in Transition

Moving Toward Privatization

Many socialist countries are selling some of their state-run businesses to help balance their budgets

Higher costs: National health care, unemployment and retirement

Great Britain Sold its national phone company,

national steel company, national sugar company, British Airways.

Developing Economies

Mostly poor countries with little industrialization

Developing infrastructure and become more prosperous

Education and foreign investment are keys to success

Chad (Central Africa) Abundance for export: cotton,

cattle, and gum arabic An investment into their oil fields

for export

Making the change from command to market economiesState owned industries have moved toward privatization

Review

1. Explain how the infrastructure of a country is related to the factors of production

2. What four broad categories do economists use to classify all economic systems?

3. In which economic system does the government let the market answer the three basic economic questions?

Review

4. In a country with a population of 300,000,000, how many people would be considered below poverty line if the percentage in that category was 12.7%?

Economy and Marketing

A healthy economy has 3 goals Increase productivity Decrease

unemployment Maintain stable prices

Keeping track of these helps aid in decision making

Economic Measurements

Accurate information about an economy is essential to the “who” process

Key economic measurements to determine strength Labor productivity Gross Domestic Product Gross National Product Standard of Living Inflation Rate Unemployment Rate

Labor Productivity

Output per worker hour measured over a period of time Increase productivity in what ways?

Invest in new equipment Employee work efficiency Training Financial incentives Worker specialization

Gross Domestic Product (GDP)

Output of G’s & S’s produced by labor and property located within the country US uses this as its primary measurement Annual reporting: Fiscal Year October – September

GDP Continued…

GDP Continued…

Made up of the sum of: Private Investment (I) Government spending (G) Personal/Consumer Spending (C) Net exports = Exports – Imports (X-M)

GDP = C + I + G + (X-M)

If net exports are negative, it will have a negative impact on the GDP

Gross National Product (GNP)

Total dollar value of G’s & S’s produced by a nation Not “where” it takes place but who is

responsible for it Ford – Plant in England

US used GNP as its primary measurement before 1991

Standard of Living

A measurement of the amount of quality of G’s & S’s that a nation’s people have Quality of life GDP / population = per capita GDP

or GNP / population = per capita GNP

Correlation between industrialized nations and high standards of living

Inflation Rate

Inflation Rising prices Stable economy =

1% to 5% (low) Devastating

economy = 10% + 1960’s – 1980’s Government raises

interest rates to discourage borrowing

Income vs Inflation

Inflation Rate Continued…

2 Measures of Inflation Consumer Price Index (CPI) Producer Price Index (PPI)

CPI Measures the change in

price over a period of time of retail G’s & S’ used by the average urban household

AKA Cost of living index Food, housing, utilities,

transportation, medical care

PPI Measures wholesale price

levels in the economy Considered the

trendsetter as prices get passed along to consumers

Decrease in PPI = decrease in CPI

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Business Cycle Continued…