Download Global Economic Issues and Policies 1e, Daniels and VanHoose

Global Economic Issues
and Policies
First edition
Chapter 1
Understanding the
Global Economy
PowerPoint Presentation by Charlie Cook
Copyright © 2004 South-Western/Thomson Learning. All rights reserved.
1. Why study global economic issues and policies?
2. How important is the global market for goods and
services?
3. How important are the international monetary and
financial markets?
4. What are market supply and demand?
5. What are consumer surplus and producer
surplus?
6. How are market prices determined?
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1–2
Global Economic Policy and Issues
• Globalization
¾ The increasing interconnectedness of peoples and
societies and the interdependence of economies,
governments, and environments.
• Economic Integration
¾ The extent and strength of real-sector and financialsector linkages among national economies.
™ The
volume of international trade in the real sector
™ The global market for goods and services
™ The volume of trade in the international monetary, and
financial markets
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1–3
The Global Market for Goods and Services
• Real Sector
¾ A designation for the portion of the economy
engaged in the production and sale of goods and
services.
• Financial Sector
¾ A designation for the portion of the economy in
which people trade financial assets.
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1–4
Table 1-1
The Top Twenty Globalized Nations
Source: Foreign Policy http://www.foreignpolicy.com.
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1–5
Figure 1-1
Growth of Global Trade in Goods and Services
Source: International Monetary Fund, World Economic Outlook, various issues.
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1–6
Figure 1-2
Selected Individual Nations’ Trade in Goods and Services
Source: International Monetary Fund, International Financial Statistics, various issues.
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1–7
The International Monetary and Financial
Markets
• Foreign Exchange Market
¾ A system of private banks, foreign exchange
brokers, and central banks through which
households, firms, and governments buy and sell
national currencies.
• Foreign Direct Investment
¾ The acquisition of assets that involves a long-term
relationship and controlling interest of 10 percent or
greater in an enterprise located in another economy.
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1–8
Table 1-2
Annual Turnover in Foreign Exchange Markets
Source: Held, David, Anthony McGrew, David Goldblatt, and Jonathan Perraton, Global Transformations, p. 209; Bank for International Settlements,
Central Bank Survey of Foreign Exchange and Derivatives Market Activity, 1998, International Monetary Fund, World Economic Outlook, 1998, 2001.
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1–9
Table 1-3
Global Foreign Direct Investment Flows
Source: UNCTAD, Handbook of Statistics, various issues and author’s estimates.
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1–10
Figure 1-3
Private Capital Flows to Emerging Economies
Source: International Monetary Fund, Annual Report, and International Capital Markets, various issues.
Copyright © 2004 South-Western/Thomson Learning. All rights reserved.
1–11
Understanding Global Markets: Supply and
Demand
• Demand
¾ The relationship between the prices that consumers
are willing and able to pay for various quantities of a
good or service for a given time period, all other
things constant.
• Law of Demand
¾ An economic law that states that there is an inverse,
or negative, relationship between the price that
consumers are willing and able to pay and the
quantities that they desire to purchase.
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1–12
Table 1-4
An individual Consumer’s
Demand Schedule
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Table 1-5
An individual Firm’s
Supply Schedule
1–13
Understanding Global Markets: Supply and
Demand (cont’d)
• The Demand
Schedule
Table 1-4
An individual Consumer’s
Demand Schedule
¾ An individual’s
demand schedule
tabulates the price the
consumer is willing
and able to pay for
various quantities of a
good or service during
a specified time
period, all other things
held constant.
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1–14
Understanding Global Markets: Supply and
Demand (cont’d)
• Supply
¾ The relationship between the prices of a good or
service and the quantities supplied to the market
by producers within a given time period, all other
things constant.
• Law of Supply
¾ An economic law that states that there is a positive
or direct relationship between the prices producers
receive and the quantities that they are willing to
supply to the market.
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1–15
Understanding Global Markets: Supply and
Demand (cont’d)
• The Supply Schedule
Table 1-5
An individual Firm’s
Supply Schedule
¾ A schedule that
tabulates the
minimum price a
supplier is willing to
accept for various
quantities supplied of
a good or service.
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1–16
Figure 1-4
The Demand for and Supply of Gasoline
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1–17
Factors Influencing Demand and Supply
• Demand Factors
• Supply Factors
¾ Changes in consumer
preferences
¾ Changes in income
¾ Changes in the prices of
related goods
¾ Changes in the number
of consumers
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¾ Changes in the cost and
availability of inputs
¾ Advances in technology
¾ Changes in the prices of
related goods of services
¾ Taxes and producer
subsidies
¾ Change in the number of
producers
1–18
Table 1-6
Factors Influencing Demand
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1–19
Table 1-7
Factors Influencing Supply
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1–20
Market Demand And Supply
• Market Demand
¾ A curve that illustrates the
prices that consumers are
willing and able to pay for
various quantities of a
good or service for a
given time period, all
other things constant.
™ Because
of the negative
relationship between
price and quantity
demanded, the demand
curve slopes downward.
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Price
Demand
Quantity
1–21
Market Demand And Supply (cont’d)
• Market Supply
¾ A curve that illustrates the
prices that producers are
willing to accept for various
quantities of a good or
service they supply to the
market for a given time
period, all other things
constant.
of the positive
relationship between price
and quantity supplied, the
supply curve slopes upward.
Price
Supply
™ Because
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Quantity
1–22
Market Demand And Supply (cont’d)
• Market Price
¾ The price determined
by the interactions of
all consumers and
producers in the
marketplace.
Price
Supply
Market
Price
Demand
Quantity
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1–23
Consumer and Producer Surplus
• Consumer Surplus
¾ The benefit that consumers receive from the
existence of a market price.
™ The
difference between what consumers are willing
and able to pay for a good or service and the market
price.
• Producer Surplus
¾ The benefit that producers receive from the
existence of a market price.
™ The
difference between the price that producers are
willing to accept to supply a particular quantity and the
market price.
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1–24
Figure 1-5
Consumer and Producer Surplus
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1–25
How Market Prices Are Determined
• Excess Quantity Supplied
¾ The amount by which quantity supplied exceeds
quantity demanded at a given price.
• Excess Quantity Demanded
¾ The amount by which quantity demanded exceeds
quantity supplied at a given price.
• Market Clearing or Equilibrium Price
¾ The price at which quantity supplied equals quantity
demanded because neither an excess quantity
demanded nor an excess quantity supplied exists at
this price.
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1–26
Figure 1-6
The Equilibrium Market Price
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1–27
How Market Prices Are Determined (cont’d)
• For an Individual Nation
¾ The market-clearing price, or equilibrium price,
occurs when there is neither an excess quantity
demanded nor an excess quantity supplied.
• For Nations Engaged in International Trade
¾ The global equilibrium market price arises when
excess quantities demanded, or imports, equal
excess quantities supplied, or exports.
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1–28
Figure 1-7
The Global Coffee Market
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