Political and Economic Analysis Chapter 3

Analysis Page 48-49: Read through the ad regarding evian Page 50-51 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 Labor 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? 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 Entrepreneurship 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 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: Which G’s & S’s should be produced? How should the G’s & S’s be produced? For whom should the G’s & S’s be produced?

Economies Market Command Mixed 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 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) 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 Communism Socialism 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 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 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 Making the change from command to market economies State owned industries have moved toward privatization Moving Toward Privatization Developing Economies 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. 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 Gum arabic: hardened sap from acacia trees

Review Explain how the infrastructure of a country is related to the factors of production What four broad categories do economists use to classify all economic systems? In which economic system does the government let the market answer the three basic economic questions?

Review 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%? Done together in class Multiply 300,000,000 by 12.7%. You should get 38.1 million

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 Graph showing the changes over the fiscal years. 2009-2010 being due to the recession; however, you can see we are again increasing production, thus GDP

GDP Continued… The first graph is the same as the last slide, but I wanted to show in more detail the percentage change in the growth rate of GDP in smaller increments of time

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 C + I + G + (X-M) Private investment = companies who are investing in company growth, product development, etc. If imports are greater than exports, than that would have a negative effect on 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 Ford is an American company who has a plant in England. Production in England would count toward our GNP

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 Per capita = per head

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

Business Cycle

Business Cycle

Business Cycle

Business Cycle

Business Cycle

Business Cycle Continued…