1. Political and Economic Analysis
Chapter 3

2. 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”

3. 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?

4. Resources All things used in producing G’s & S’s
Factors of production when referring to resources
Land
Labor
Capital
Entrepreneurship

5. 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

6. 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

7. 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)

8. 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?

9. 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

10. 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

11. 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

12. 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?

13. 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

14. 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

15. 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

16. 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

17. 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 being due to the recession; however, you can see we are again increasing production, thus GDP

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. Business Cycle

25. Business Cycle

26. Business Cycle

27. Business Cycle

28. Business Cycle

29. Business Cycle Continued…