Warm Up

Economy of the Middle East SS7E5, SS7E6

SS7E5 The student will analyze different economic systems. SS7E5. C. Compare and contrast the economic systems in Israel, Saudi Arabia, Turkey, and Iran.

Israel Has almost no natural resources or farmland.

Israel Developed good relations with much of Western Europe and the United States. Economy based on advanced technology.

Saudi Arabia Rich oil reserves. Profit from oil allows them to buy most goods they are unable to produce themselves.

Saudi Arabia King and his advisors make most decisions about how and where to spend the oil profits. Invested much wealth in technology and services which allows them to produce goods not usually found in a desert climate.

Iran Great oil wealth. Command economy has not been efficient in recent times.

Iran Shift to a more mixed economy. Despite the oil wealth, the Iranian people do not share in the money.

Turkey Least economic freedom of these four countries. In earlier times, the gov’t has controlled airlines, railroads, telephone, and television.

Turkey Recently the gov’t has loosened its hold on these industries. Have allowed some private ownership More laws have been passed to protect business owners

SS7E6. The student will explain how voluntary trade benefits buyers and sellers in the Middle East SS7E6.a. Explain how specialization encourages trade b/w countries.

Specialization Not every country can produce the goods and services it needs. So they “specialize” in producing a good or service that they can produce most efficiently. They can then trade that product for goods and services they need.

Specialization Way to build a profitable economy and earn money to buy what it needs. Saudi Arabia specializes in the production of oil and gas. Israel specializes in agricultural technology even though they have a limited supply of farm land.

SS7E6. The student will explain how voluntary trade benefits buyers and sellers in the Middle East B. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos.

Trade Barriers Anything that slows down or prevents one country from exchanging goods with another. Some protect local industries from lower priced goods made in other countries (keeps competition away).

Trade Barriers Some created due to political problems between countries.

Tariff Tax placed on goods when they are imported into one country from another.

Tariff Purpose is to make the imported good more expensive than the similar item created locally. “protective tariff”-protects local manufacturers from competition

Quota Different way of limiting the amount of foreign goods than can come into a country.

Quota Sets a specific amount of particular goods that can be imported in a certain time frame.

Embargo When one country announces that it will no longer trade with another country in order to isolate the country and cause problems with that country’s economy.

Embargo Usually result of a political dispute. 1973-OPEC decided to stop all sales of oil and gas to countries supporting Israel in the 1973 Arab-Israeli war.

SS7E6. The student will explain how voluntary trade benefits buyers and sellers in the Middle East c. Explain the primary function of the Organization of Petroleum Exporting Countries (OPEC)

OPEC Created in 1960 by countries with large oil supplies. Countries wanted to work together to regulate the supply and price of oil exported to other countries.

OPEC First five countries: Kuwait, Iraq, Saudi Arabia, Iran and Venezuela. Continue to decide how much oil they will produce and that determines the price on the world market. Basic principles of supply and demand.

Voluntary Trade in the Middle East SS7E6 The student will explain how voluntary trade benefits buyers and sellers in Southwest Asia (Middle East).

SS7E6 a. Explain how specialization encourages trade between countries Not every country can produce all the goods and services it needs Because of this, countries specialize in producing those goods and services that they CAN provide most efficiently. They then look for others who may need those goods and services so they can sell their products to those who need them.

SS7E6 a. Explain how specialization encourages trade between countries So What Does That Mean? Countries trade with one another to get everything they need for their country. In order to do that, each country produces what they can make the best. Then they trade with one another.

SS7E6 a. Explain how specialization encourages trade between countries In international trade, no country can be completely self-sufficient. Which means….no country can produce all the goods and services it needs Specialization: a country makes the products it can produce best and that are in demand on the world market This is a way to build a profitable economy and to earn money to buy items that cannot be made locally

SS7E6 a. Explain how specialization encourages trade between countries Some countries in the Middle East are very rich in oil and natural gas HOWEVER…they lack farmland and the ability to produce enough food SO…they money earned on the world market with oil is used to purchase food

EXAMPLES of SPECIALIZATION: SS7E6 b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos. EXAMPLES of SPECIALIZATION: ***Saudi Arabia: produces oil and natural gas to sell at great profit on the world market. Then they turn around to and use the money made to purchase food AND the technology needed to make their agriculture system more efficient. ***Israel: has become leader in agricultural technology even though they have a limited supply of land suitable for farming. They can sell this technology to earn money to buy food they are unable to produce. IT”S ALL A TRADE OFF…

Let’s Review The Three Types of Trade Barriers!! SS7E6 b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos. Let’s Review The Three Types of Trade Barriers!! Tariff Quota Embargo All three of these are considered to be trade barriers. They slow down or prevent one country from exchanging goods with another.

Why have trade barriers? SS7E6 b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos. Why have trade barriers? To protect local industries from lower priced goods made in other countries Political problems between countries (trade would be stopped until the political issues are settled)

SS7E6 b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos. Tariff: a tax placed on goods when they are brought (imported) into one country from another country. Purpose: Make the imported good more expensive than a similar item made locally. Called a “protective tariff” because it PROTECTS local manufacturers from competition coming from cheaper goods made in other countries

SS7E6 b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos. Quota: sets a specific amount or number of a particular product that can be imported or acquired in a given period Purpose: a different way of limiting the amount of foreign goods that can come in to a country. EX: Israel could decide that only 1500 cars could be brought into the country from Japan in a given year. That would make it more likely that people buying cars would have to buy Israeli made cars, if Japanese cars were not available.

SS7E6 b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos. Embargo: when one country announces that it will no longer trade with another country in order to isolate a country and cause problems with that country’s economy. Purpose: to punish OR persuade a country Example: Member countries of OPEC decided to stop all sales of oil and gas to the countries supporting Israel in the 1973 Arab-Israeli war.

Most countries in Southwest Asia have their own type of currency. SS7E6 d. Explain why international trade requires a system for exchanging currencies between nations. Most countries in Southwest Asia have their own type of currency. In order to pay for goods as they trade with each other, they had to establish a system of changing one type of currency to another. Exchange Rate In order for them to trade with each other, they have to be able to figure out what goods cost in each currency. To sum it all up…This makes it possible to buy and sell goods between nations with different types of money.

The Iraqi Dinar The Saudi Riyal

Iranian (Persian) Rial Israeli Lira