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ECONOMIC CONCEPTS FOR AN INTERNATIONAL MARKETER YOU WILL LEARN TO…. • Explain the relationship between international marketing and economics. • Understand that economic choice is a result of unlimited needs and wants combined with limited resources. • Discuss the importance of specialization, comparative advantage, and opportunity costs in world trade. • Interpret a production possibilities curve. • Define several economic indicators and understand how to use to evaluate the strength and stability of a nation’s economy. WHY STUDY ECONOMICS? • Global marketing is all about economics! • Economics is the study of how societies make choices among unlimited wants and needs when the resources to satisfy them are limited. UNLIMITED WANTS AND NEEDS • Human needs and wants are UNLIMITED! • Basic needs: food, shelter and clothing • Wants: goods and services people would like to have but could do without. BUT I WANT IT! • There are no limits to what people may want. • When you satisfy a need or want, something else is always wanted. • What people need and want and the choices they make to satisfy those needs and wants is the heart of economics. LIMITED RESOURCES • A person can’t have everything they want. • Resources are those things used to satisfy human needs and wants. • Factors of Production: Land, labor, capital and entrepreneurship FACTORS OF PRODUCTION (RESOURCES) • Land – minerals, space, soil and productive capacity of a given area • Labor- mental and physical abilities available in a work force • Capital – buildings, equipment, factories capable of producing what is desired • Entrepreneurship – the person who organizes the business and assumes the risks of operation SCARCIT Y AND CHOICE • Unlimited needs and wants combined with limited resources lead to scarcity. • How much is wanted vs. how much is available • Choice is the act of selecting among alternatives. • Economics is about making choices. WHY DO PEOPLE TRADE? • Each society must evaluate resources and make decisions on how to use those that are limited. SPECIALIZATION • Specialization is the key to satisfying human needs and wants in a global trading environment. • Specialization means trading partners use their resources to produce items they can best produce. Then they trade for items they cannot produce as well. COMPARATIVE ADVANTAGE VS. ABSOLUTE ADVANTAGE • Absolute advantage means a country can produce a good or service more efficiently than any other country. • Comparative advantage is the principle that a country should specialize in producing the goods or services at which it is relatively most efficient. THE LAW OF COMPARATIVE ADVANTAGE • When each nation produces what it is best suited to produce and trades for what it is less suited to produce, the total amount of world trade rises. TRADE-OFFS AND OPPORTUNIT Y COST • With every decision a nation makes, there is a trade-off. • Trade-Offs: what a person, business or nation has to give up to get something else. • Opportunity Cost: the value of the alternative that is not chosen when a decision is made about allocating available resources. PRODUCTION AND RESOURCES • Production Possibilities Curve – a graphic illustration of the combination of output that can be produced if all resources are used efficiently. ECONOMIC INDICATORS • Economic indicators are measures that chart the progress of a nation’s economy. • When evaluating the economies of potential trading partners, it is helpful to analyze these economic indicators. GROSS NATIONAL PRODUCT AND GROSS DOMESTIC PRODUCT • GNP (Gross National Product)– The total market value of all final goods and services produced by a nation in one year. • GDP (Gross Domestic Product)– All production within a nation’s border regardless of which nation owns the companies. PER CAPITA GDP • The amount of product produced within a nation’s borders, per person in a year is the per capita GDP. BUSINESS CYCLES • A Business Cycle is the pattern of up-anddown motion in the total economic output of a nation. • Business Peak • Economic Contraction • Business Trough • Economic Expansion BUSINESS PEAK • High levels of economic activity • High employment • Healthy sales of goods and services • Successful Period • The late 1920’s & 1990’s ECONOMIC CONTRACTION AND A BUSINESS TROUGH • Contraction leads to a business trough • Business slows down • Low levels of economic activity • High unemployment • Slow sales of goods and services • Recession • Depression ECONOMIC EXPANSION • Leads out of the trough to the peak • Cycle repeats itself RECESSION VS. DEPRESSION • Recession – GNP or GDP declines for six to eighteen months. • Temporary economic decline • Depression – A sharp decline in economic activity for a long time (more than two years). WORLD EXPORT/IMPORT GROWTH 1995 $ millions 500,000.00 400,000.00 300,000.00 200,000.00 100,000.00 1996 1997 Countries Other Japan Imports Other Japan 1998 Exports Dollars International Trade 1999 2000 • There has been rapid growth in exports and imports in the last 40 years. • Countries are more interdependent. • Economic slowdown in one country causes economic slowdowns in other countries. COMPOSITE INDEXES OF ECONOMIC INDICATORS • Economists must look at a number of figures to measure the economic health of a nation. • Composite indexes of economic indictors are made up of several different measures of a nation’s economy. LEADING INDICATORS • Leading indicators dictate the future of the economy. • Average workweek of production workers • Initial claims for state unemployment compensation • New manufacture orders • Building permits for new private-housing • Common stock prices