2 What is an Economy?Economy: Production or exchange of goods and services by a groupGoods: things to be traded, bought, or soldServices: work done in exchange for paymentLabor: work force, the workers
3 Economic Geography What is Economic Geography? Concerned with how people use the earth’s resourcesHow people earn a livingHow products are distributed
4 Traditional EconomyCustom and tradition determine what should be producedGoods and services are exchanged without money; subsistence agricultureChange and growth proceed very slowlyOften there is no private property; things are owned by the family or villageGoods and services are produced to meet the needs of the members of the family/tribeVery little outside tradeAlso called “Barter”
5 Command EconomyAll important economic decisions are made by government leaders, including production of goods and servicesCooperation is supposed to replace competition, allowing everyone’s needs to be met; goal is to achieve a classless, equal societyCitizens can be assigned or strongly encouraged into various employmentPrivate property ownership is abolished and replaced by national ownership of all land, factories, farms, and major resourcesAlso called “planned economy” or “communism”Example: Cuba, China, North Korea, Vietnam
6 Market EconomyGoods and services are determined through supply and demand; individual decisions on what to buy or sellPeople are free to take part in any business, buy any product, or sell a legal product.Private ownership of businesses and land; private investmentThe government only provides and enforces a set of common rules, maintains monetary system, and will sometimes break up or regulate companies that could defy market forcesAlso called “free market economy” or “capitalism”Example: USA
7 Mixed Economy Combination of command and market economies Mixed amounts of government control and private ownershipExample: Canada, most European countries
8 What is Supply and Demand? Supply: how much of a good is available on the marketDemand: how much consumers are willing to pay for a goodThe interaction of supply and demand determines prices in a free market economy. When demand is high, the price goes up. It the supply is high but demand is low, the price goes down.
9 What’s the difference? SOCIALISM COMMUNISM Many decisions about production, distribution, and use of resources are made by the governmentOnly major industries are owned by the government – other property is held privatelyMajor industries: mines, factories, railroads, education, airlines, transportation, health care, radio stationsGoal: fair distribution of income among all members of society. People’s basic needs are met for free or at a very low costCOMMUNISMGovernment makes all important economic decisionsAbsolutely no private property ownership – government owns all lands and businessesCooperation replaces competitionGoal: achieve a classless, equal societyAll important economic decisions are made by government leaders, including production of goods and servicesCooperation is supposed to replace competition, allowing everyone’s needs to be met; goal is to achieve a classless, equal societyCitizens can be assigned or strongly encouraged into various employmentPrivate property ownership is abolished and replaced by national ownership of all land, factories, farms, and major resourcesAlso called “planned economy” or “communism”Example: Cuba, China, North Korea, VietnamSOCIALISM:It is an economic system in which the most important businesses producing goods (mines, factories, businesses) are owned by the government rather than by individuals.the difference between socialism and communism is that socialism encourages private ownership of small businesses (such as shops and small manufacturers).Referred to as “free market socialism” at times because they do not involve state planning.Socialists believe that workers can improve their own conditions by voting for sympathetic government leaders.The government can provide essential services, such asFree schoolingLow-cost housingPublic transportationNational health programRole of Government: Government should use its power to bring an end to poverty by taking control of the major resources of the nation (railroads, airlines, radio stations) and by providing public services.After WWII many countries in Europe became Socialist.But privatization has taken over as in India and countries in Africa.*Sweden and Israel model their economies on the ideas of socialism.
10 Comparisons Commercial Agriculture Subsistence Agriculture farmers grow food not just for themselves, but in order to sell it to others for cash. Crop production is intended for distribution to wholesalers and retailers, such as supermarkets and grocery stores. Large scale makes production cheaper. Mechanized equipment is used over large tracts of land.Subsistence Agriculturegrowing only enough to feed the farmer and his family. There is rarely a surplus so very little is sold or traded. Economic growth is slow.
11 Comparisons Cottage Industries Commercial Industries people use their spare time to weave cloth, make furniture and clothes. Producing goods by hand. Help farmers and their families meet their needs and may give them extra income during the winter months. The entire family works together.Commercial Industriesgoods are manufactured in factories for sale throughout the country or overseas.
12 FIVE Employment Sectors Different levels of employment (labor) are based on a variety of factorsEducation level required to perform taskLocation (geographic – available resources)Location (to appropriate market)
13 Types of Economic Systems – Comparison Chart TRADITIONALSYSTEMCOMMANDMARKETMIXEDWHAT TOPRODUCE?By custom – whatever was produced in the pastThe government decides what should be producedthe government owns most of the means of production Consumer choices dictate the success of goods/services Consumer choices dictate the success of goods/services with some government regulationHOW TOBy custom – however items were produced in the past The government does the planning for production; factory locations; the occupations of workers and their salariesBusiness leaders choose the means of productionTheir goal is the most efficient and profitable methods Business leaders choose the means of production with the government regulating a fair economyFOR WHOMTOBy custom – whoever usually received products will again receive them The government controls the distribution system for goods/services; housing, transportation, consumer items and sets prices The consumers’ income determines who receives which goods/services
14 Primary ActivitiesGathering raw materials like natural resources taken from the EarthExamples: mining, fishing, farming, agriculture, forestry
15 Secondary Activities Manufacturing and Industry Converts raw materials into new productsAdding value to raw materials by changing their formExample: food processing, manufacturing, refiningFound: near markets to serve customers, where special manufacturing needs can be met, where the government creates the industry
16 Tertiary ActivitiesService Industries like business or professional servicesExample: retail salespeople, doctors, hair stylists, manicurists, health care, banking
17 Quaternary Activities Provide information processing, research, or management by highly trained professionalsExample: store managers, scientists, computer programmer, legal services, professorships
18 Quinary ActivitiesHighest level of decision makers and management for businesses and organizationsExamples: CEOs for international corporations
19 Toothpick Lumberjack chops down the tree Primary ActivityWood from tree is manufactured into a toothpickSecondary ActivityToothpick is advertised (marketed) and sold at H-E-B by a sales employee.Tertiary ActivityExecutive for toothpick Company wants to create a toothpick that is cheaper to produce and lasts longerQuaternary Activity
20 How do you rate an economy? GNP = “Gross National Product”Total value of all goods and services produced by a country over one yearMay reflect the value of goods/services produced in a country by a company owned/based in another countryvalue of goods produced in another country (shoes made in Thailand) by an American-based company will count towards the US GNP
21 GDP = “Gross Domestic Product” Total value of all goods and services produced within a country over one yearOutsourcing labor counts for US GNP but not GDP
22 Per Capita IncomeAverage amount of money earned per person in a political unit (country) per year
23 InfrastructureBasic support systems to start an economy and/or keep it goingRoadsElectricityWaterAirportsPortsTrainsTechnology
24 Economic DevelopmentEconomic development refers to how advanced an economy isAdvanced economies are more developed countriesLower standards of living and less advanced technologies are less developed countriesCountries moving from less to more developed economies are “newly developed” or “emerging economies”
25 What are indicators of development? The United Nations (UN) developed the Human Development Index (HDI) to rank countries based on their level of economic development.They look at demographic, economic, social, and political indicators.
27 Demographic Indicators Birth RateDeath RateInfant Mortality RateFertility RateLife ExpectancyThe average number of years an individual in a country is expected to live; related to the country’s level of povertyHow do these indicators apply to more and less developed countries?More developed = low death rate, low infant mortality rate, lower birth rate, long life expectancyLess developed = high birth rate, high death rate, high infant mortality rate, shorter life expectancy
29 Economic IndicatorsEconomic indicators tell how well an economy is performingMore developed countries will have:Higher GDP / GNPHigher per capita incomeHigher standard of livingMore trained professionals such as doctorsWorkers’ productivity depends on machinery, computers, and other high-tech toolsAverage number of technological appliances: automobiles, telephones, televisions, computersLower developed countries --Low GDP, per capita income, standard of livingConcentrate more on agriculture such as subsistence farming and use of primitive toolsLack investment so their workers tend to be less productive and less competitive
30 Social IndicatorsSocial indicators concentrate on the social services provided by countries for their citizensSome indicators that are considered:Literacy rates (percentage of people who can read and write)Percentage of people attending colleges and universitiesNumber of working professionalsQuantity and quality of housingWater suppliesSanitationMDCs have a high literacy rate. Large number of doctors and hospitals serving the populationsLDCs have a lower literacy rate. Small number of doctors and hospitals that serve the population.
31 Political Indicators Political indicators include: Freedoms people enjoyThe degree of democracy and voting rightsThe level of human rights,The degree of government oppression and,Tolerance for different points of view.There is no direct relationship between economic development and a nation’s system of government.Some more-developed economies have been ruled by dictators while,Some democracies are less developed countries.
32 Developed vs. Developing Countries Also Called IndustrializedWhy?Form of government (democracy)Free market economyLack of corruptionMore dependent on manufacturing than agriculturePrevalent technologyExamplesUnited StatesJapanGermanyFranceDEVELOPINGAlso Called Third World CountriesWhy?Undeveloped industryLack modern technologyLow levelsEducationHealthcareLife expectancyExamplesMexicoBrazilSouth AfricaThailand