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CHAPTER 2 Our Global Economy 2-1 2-2 2-3 2-4 2-5 Economics and Decision Making Basics of Economics Economic Systems Achieving Economic Development Resources Satisfy Needs © 2011 South-Western | Cengage Learning CHAPTER INTERNATIONAL BUSINESS, 4e 2 LESSON 2-1 Economics and Decision Making GOALS Describe the basic economic problem. List the steps of the decisionmaking process. © 2011 South-Western | Cengage Learning SLIDE 2 CHAPTER INTERNATIONAL BUSINESS, 4e 2 The Basic Economic Problem Scarcity refers to the limited resources available to satisfy the unlimited needs and wants of people. Economics is the study of how people choose to use limited resources to satisfy their unlimited needs and wants. © 2011 South-Western | Cengage Learning SLIDE 3 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Making Economic Decisions Coping with scarcity Making choices © 2011 South-Western | Cengage Learning SLIDE 4 CHAPTER INTERNATIONAL BUSINESS, 4e 2 The Decision-Making Process © 2011 South-Western | Cengage Learning SLIDE 5 CHAPTER INTERNATIONAL BUSINESS, 4e 2 LESSON 2-2 Basics of Economics GOALS Describe how the market sets prices. Explain the causes of inflation. © 2011 South-Western | Cengage Learning SLIDE 6 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Price-Setting Activities Supply is the relationship between the amount of a good or service that businesses are willing and able to make available and the price. Demand is the relationship between the amount of a good or service that consumers are willing and able to purchase and the price. Market price is the point at which supply and demand cross. © 2011 South-Western | Cengage Learning SLIDE 7 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Market Price Is Set by Supply and Demand © 2011 South-Western | Cengage Learning SLIDE 8 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Changing Prices Inflation Demand-pull inflation Cost-push inflation © 2011 South-Western | Cengage Learning SLIDE 9 CHAPTER INTERNATIONAL BUSINESS, 4e 2 LESSON 2-3 Economic Systems GOALS Name the three main factors of production. Understand how different countries make economic decisions. © 2011 South-Western | Cengage Learning SLIDE 10 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Economic Resources Satisfy Needs Natural resources Human resources Capital resources © 2011 South-Western | Cengage Learning SLIDE 11 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Natural Resources Also known as land, these resources are the raw materials that come from the earth, from the water, and from the air. Iron ore, gold, silver, agricultural products, rivers, and oxygen are examples of natural resources. These items are used in the production of goods and services consumed by individuals, businesses, and governments. © 2011 South-Western | Cengage Learning SLIDE 12 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Human Resources Also known as labor, these resources are the people who work to create goods and services. While technology has changed or eliminated certain tasks previously performed by people, new types of work are continually being created. © 2011 South-Western | Cengage Learning SLIDE 13 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Capital Resources Also called capital, these resources include buildings, money, equipment, and factories used in the production process. These items are expensive and are used over several years by business organizations. © 2011 South-Western | Cengage Learning SLIDE 14 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Economic System The economic choices of a country relate to three basic questions: 1. What goods and services are to be produced? 2. How should the goods and services be produced? 3. For whom should the goods and services be produced? © 2011 South-Western | Cengage Learning SLIDE 15 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Types of Economic Systems Command Economies Market Economies Private property Profit motive Free, competitive marketplace Mixed Economies © 2011 South-Western | Cengage Learning SLIDE 16 CHAPTER INTERNATIONAL BUSINESS, 4e 2 LESSON 2-4 Achieving Economic Development GOALS Describe the factors that affect economic development. Identify the different levels of economic development. © 2011 South-Western | Cengage Learning SLIDE 17 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Development Factors Literacy level Technology Agricultural dependency © 2011 South-Western | Cengage Learning SLIDE 18 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Types of Development Industrialized countries Less-developed countries Developing countries © 2011 South-Western | Cengage Learning SLIDE 19 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Levels of Economic Development LessDeveloped Country Low literacy Limited technology Agricultural or mining economy Developing Country Industrialized Country Improving literacy Improving technology Decreasing dependence on agriculture or mining High literacy Modern technology Industrial economy © 2011 South-Western | Cengage Learning SLIDE 20 CHAPTER INTERNATIONAL BUSINESS, 4e 2 LESSON 2-5 Resources Satisfy Needs GOALS Discuss economic principles that explain the need for international trade. Identify various measures of economic progress and development. © 2011 South-Western | Cengage Learning SLIDE 21 CHAPTER INTERNATIONAL BUSINESS, 4e 2 The Economics of Foreign Trade Absolute advantage exists when a country can produce a good or service at a lower cost than other countries. Comparative advantage exists when a country can produce a good or service with more efficiency than other countries. © 2011 South-Western | Cengage Learning SLIDE 22 CHAPTER INTERNATIONAL BUSINESS, 4e 2 Measuring Economic Progress Measure of Production Gross domestic product (GDP) Gross national product (GNP) International Trade Activity Balance of trade Foreign exchange rate Foreign debt Other Economic Measurements Consumer price index (CPI) Unemployment rate © 2011 South-Western | Cengage Learning SLIDE 23