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Unit 2 Economics Chapter 3 Political and Economic Analysis Chapter 4 Global Analysis WhatChapter Is an Economy? 3 Political and Economic Analysis • Section 3.1 What Is an Economy? • Section 3.2 Understanding the Economy What Is an Economy? Key Terms economy resources factors of production infrastructure scarcity traditional economy market economy command economy Objectives • Define the concept of an economy • List the factors of production • Explain the concept of scarcity • Discuss how the three basic economic questions are answered by these economies: Traditional Mixed Command Market • Cite examples of various economic systems Marketing Essentials Chapter 3, Section 3.1 What Is an Economy? Study Organizer Create a diagram like this one to record information about market economies and command economies. What Is an Economy? An economy X is the organized way a nation provides for the needs and wants of its people A country chooses how to use its resources to produce and distribute goods and services Therefore, a country’s resources determine economic activities such as: • Manufacturing • Buying • Selling • Transporting • Investing Marketing Essentials Chapter 3, Section 3.1 Resources Resources X are all the things used in producing goods and services. Four Categories of Resources: • Land (Natural Resources) • Labor (Human Resources) • Capital • Entrepreneurship Which are tangible? Which are intangible? Land Capital Labor Entrepreneurship 1. Land Resources Land includes all the “natural” resources in the earth or found in the seas, for example: What are some examples of Natural resources? • • • • • Coal Crude oil Trees, plants and soil Water and all living things in the lake Climate and country’s geography used to attract tourists Marketing Essentials Chapter 3, Section 3.1 These natural resources are used as: • Raw materials for the creation of goods and services • Attractions for tourism Spain’s land—including its coasts, historical cities, and national parks—is an economic resource that makes the country an attractive tourist destination. Marketing Essentials Chapter 3, Section 3.1 2. Labor Resources Labor refers to all the people who work What are some examples of Labor resources? • Full- and part-time workers • Managers • Professionals in the public and private sectors • Businesses compete to have the best employees Economies with well-trained labor have an advantage over other nations in attracting businesses 3. Capitol Resources Capital includes money to start and operate a business and goods used in the production process: What are some examples of Capital Resources? • Cash/money • Factories and Office buildings • Computers and tools • Raw natural materials that have been processed into usable form (ex: lumber or steel that you own) Capital Resources Capital also includes infrastructure infrastructure: the physical development of a country What are some examples of infrastructure? • Roads • Ports • Sanitation facilities • Utilities - especially Telecommunications Capital Resources Without capital, businesses would not have the funds or resources to develop, advertise, or transport goods Marketing Essentials Chapter 3, Section 3.1 4. Entrepreneurship Resources Entrepreneurship refers to the skills of people who are willing to invest their time and money to run a business. Entrepreneurs: • Organize factors of production to create goods and services • Employers of a population Marketing Essentials Chapter 3, Section 3.1 United States Resources • What are some examples of natural Resources in the US? • Student Contributions: United States Resources • • • • Educated Labor force Great deal of capital Abundance of entrepreneurs Large amount of natural resources: – coal, copper, lead, molybdenum, phosphates, uranium, bauxite, gold, iron, mercury, nickel, potash, silver, tungsten, zinc, petroleum, natural gas, timber; note: the US has the world's largest coal reserves with 491 billion short tons accounting for 27% of the world's total • Does every country have the same as we do? Scarcity • Different economies have different amounts of resources • May have resources but not the capital • May have capital but not the resources • Don’t have the labor force or education • Many can’t meet the needs and wants of all its citizens (poverty a result) • Scarcity = the difference between a country’s unlimited wants and limited resources X. • Scarcity forces nations to make economic choices • Must decide how to use their limited resources • How they use their resources defines their economic system How Does an Economy Work? Nations answer three basic questions when deciding how to use their limited resources: • What goods and services should be produced? • How should the goods and services be produced? • For whom should the goods and services be produced? Like asking What, How, and Whom all questions are based on the resources they have access to How Does an Economy Work? There are three broad categories into which economic systems are classified: • Traditional • Market • Command No economy is purely one type. It is always a combination. Marketing Essentials Chapter 3, Section 3.1 Traditional Economies In a traditional economy X, traditions and rituals answer the basic questions of what, how, and for whom. • What: If people belong to a farming community, they farm for generations. There is little choice as to what to produce. Only product what they need to sustain – no surplus • How: Again, this is bound by traditions. The practices of a family’s ancestors carry on. • For whom: Tradition regulates who buys and sells and where and how the exchange takes place. • Ex: - bartering of hunted prey used by the Inuit tribes in northern Canada - economy of the Sami reindeer herders in northern Scandinavia. Market Economies In a pure market economy X, there is no government involvement in economic decisions. The market is free to answer: • What: Consumers decide what should be produced in the market through which products they buy the most • How: Businesses decide how to produce goods and services by being competitive and out-selling their competitors • For whom: The people who have more money are able to buy goods and services. • To make money, people are motivated to work and invest their income Command Economies A command economy X system in which a country’s government makes economic decisions and decides: • What: One person (often a dictator) or a group of government officials decides what products are needed. • How: The government owns all means of production, so it makes the decisions • Controls all employment opportunities and benefits • Extreme cases: tells people where they will work and how much they will get paid • For whom: Wealth is regulated by the government to equalize everyone. Everything from housing to education is subsidized by the government. Mixed Economies • No economy is purely traditional, market, or command • All economies are considered somewhat mixed • What do you think the US Economy is? • Mixed economy leaning toward market economy • Business laws and regulations, labor laws, OSHA standards Marketing Essentials Chapter 3, Section 3.1 Economies • Economic systems placed on a continuum to compare levels of government involvement • Systems to the left are more regulated by their governments • Economic freedom to the right encourages competition • Where would a pure Market Economy be placed on the continuum below? • Where would a pure Command Economy be placed? • What is in between? Political Philosophies A meaningful classification depends on how much a government interferes with the free market Three political philosophies that shaped economies: 1. Capitalism 2. Socialism 3. Communism Capitalism • Capitalism - economic philosophy characterized by marketplace competition and private ownership of business • The political system most frequently associated with capitalism is democracy • Capitalist countries include: • The United States • Japan Where is capitalism on the continuum below? Marketing Essentials Chapter 3, Section 3.1 Communism • • Communism = economic philosophy in which the government controls the factors of production No financial incentive for people to increase their productivity as the government regulates and assigns: • Employment • Medical care • Education • Housing • Food Where is Communism on the Continuum? Communism Examples of modern communist countries are: • Cuba • North Korea • China Marketing Essentials Chapter 3, Section 3.1 Socialism Socialism: supports private ownership yet controls the means of production and distribution– • Market is not completely controlled by the government • Increased amount of government involvement • More social services: education and medical care is free or low cost • Pensions and Elderly care • The state will control noncompetitive companies like: • Telecommunications • Natural resources (gas, water, and power) • Transportation • Banking Socialism Examples of Modern countries with socialism: • Canada • Germany • Sweden Where is Socialism on the Continuum? Socialism Today, many socialist countries are selling some of their state-run businesses to help balance the increasing costs of: • National health care • Unemployment • Retirement programs This transfer of control is called privatization Marketing Essentials Chapter 3, Section 3.1 Developing economies are mostly poor countries with little industrialization that are improving their infrastructure to become more prosperous. These countries need to improve: • Education • Technology • Exports • Means of production (roads, ports, utilities) Marketing Essentials Chapter 3, Section 3.1 Section 3.1 What Is an Economy? Differences and Similarities Among Market and Command Economies SECTION CHAPTER3.1 1 REVIEW REVIEW SECTION 3.1 REVIEW - click twice to continue -