1. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - CHAPTER 4: Economics and Politics

2. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Key Terms  political system  economic system  market economy  centrally planned economy  mixed economy  democracy  autocracy  underdeveloped countries  developing countries  developed countries  gross domestic product (GDP)  business cycle  absolute advantage  opportunity cost  comparative advantage  lobbying

3. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Chapter Objectives By the time you finish this chapter, you should be able to:  Evaluate the advantages and disadvantages, in both developed countries and developing countries, with regard to business opportunities  Analyze the rationale for, and the impact of, Canadian government initiatives and policies relating to international trade  Assess the ways in which political, economic, and geographic factors influence international business methods and operations  Describe the roles corporations can play in setting international and domestic policy

4. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Economic and Political Systems ____________________ The type of government by which a country is run____________________ The way a country organizes its resources and distributes goods and services to its citizens.

5. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Economic and Political Systems The answers to the following questions define a country’s economic system: 1.What should the country produce and in what quantities? 2.How should _______________such as labor and capital _______________? 3.How should goods and services be distributed throughout the country? 4.What should be the price of the goods and services?

6. Parag Khanna (Geopolitical researcher and political advisor)  Do we live in a borderless world? Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc.

7. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Economic and Political Systems Market economy An economic system determined by ________________, in which businesses, consumers, and government act independently of one another, and market forces and self-interest determine what goods are created and sold.

8. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Economic and Political Systems In a market economy:  Corporations and people are encouraged to own private property  Profit belongs to business _____________ and they can _______how to spend it  Companies compete in terms of quality, services, price, reputation, and warranties. Consumers have greater selection and companies have an incentive to _________________.

9. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Economic and Political Systems Centrally planned economy An economic system in which the ___________ _____________ all elements of the economy, including prices, wages, and production.

10. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Economic and Political Systems In a centrally planned economy:  Ownership of property is ________  All profit belongs to the ____________;  all workers are employed by the government  Competition is _________; government determines price, quality, style, and amount of goods and services

11. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Economic and Political Systems Mixed economy An economic system that sits between a _________ economy and a _________ planned economy, combining government intervention and private enterprise. ½ Cup of Centrally Planned Economy ½ Cup of Market Economy

12. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Economic and Political Systems In a mixed economy:  Property is owned by individuals, corporations, or government  Profit is ___________, but ___________to support government projects and programs  Strong competition amongst corporations; government may also be a competitor

13. ECONOMIES OF THE WORLD Place the flags under the heading that best represents their economy. Command MarketMixed Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc.

14. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Economic and Political Systems Political system The type of ___________ by which a country is run.

15. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Economic and Political Systems _________________ A state governed by all eligible members of the population through _______ representatives.  Characterized by free and fair _________, the rule of law, free speech and press, the right to assembly, and _________ of religion  Politicians may be more concerned with re-election than the good of the country

16. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Economic and Political Systems ______________ A state governed by a single individual or a small group of people with ______________ power.  Usually has strong ________ presence  Strives to control all aspects of citizens’ lives  Citizens have no influence on government

17. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Classifications of Economic Development _______________countries Also referred to as the _______________________ _________ countries, nations that are at the lowest level of the world’s economies (below the poverty line) © iStockphoto.com

18. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Classifications of Economic Development Underdeveloped countries are characterized by:  Severe poverty social services  Lack of social services nfrastructure  Poor infrastructure  Low levels of literacy technology  Limited access to technology  Agriculture- or resource-based economies political issues  Long-term political issues, such as dictatorships and war  Geographically – experience environmental or natural catastrophes

19. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Classifications of Economic Development Developing countries emerging Also known as emerging or ____________________, nations in transition from a poor economy to a prosperous one. Used under license from Shutterstock, Inc.

20. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Classifications of Economic Development ____________countries ____________countries are characterized by: literacy rates  Improved literacy rates health caresocial servicestechnological  Increased access to health care and other social services, and technological advancement  A move away from a resource-based economy to a manufacturing base cities  Population moving from rural areas to cities

21. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Classifications of Economic Development _____________countries industrialized Also known as industrialized or ________________ ____________, nations that are characterized by a high per capita income or strong gross domestic product (GDP).

22. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Classifications of Economic Development Developed countries are characterized by:  A reliance on secondary and predominantly tertiary industries, rather than primary industries  High standards of living  High literacy rates  Major advancements in health care and technology  World leaders with strong trade alliances © iStockphoto.com

23. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Classifications of Economic Development Gross domestic product (GDP) ______________________________ _____________________________. It indicates the STRENGTH of a nation’s economy to help determine it’s goals and development programs GDP per capita GDP per capita =

24. Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Classifications of Economic Development

25. Homework  List 10 countries for each economic classification. (Your portfolio country should be one of the them!)  P. 118 #19 Chapter 4: ECONOMICS AND POLITICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc.