Download Economic Systems

INTERNATIONAL BUSINESS
CHAPTER IV
ECONOMIC SYSTEMS AND DEVELOPMENT
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Learning Objectives
Describe what is meant by a centrally planned economy and explain why its
use is declining.
Identify the main characteristics of a mixed economy and explain the
emphasis on privatization.
Explain how a market economy functions and identify its distinguishing
features.
Describe the different ways to measure a nation’s level of development.
Discuss the process of economic transaction and identify the remaining
obstacle for business.
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ECONOMIC SYSTEMS
Centrally Planned Economy
Mixed Economy
Market Economy
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ECONOMIC SYSTEMS
Economic System
Structure and processes that a country uses to allocate its
resources and conducts its commercial activities.
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ECONOMIC SYSTEMS
MIXED ECONOMY
CENTRALLY PLANNED ECONONY
ECONOMIC
SYSTEM
MARKET ECONOMY
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Centrally Planned Economy
Centrally Planned Economy
Economic system in which a nation’s land, factories, and other
economic resources are owed by the government, which plans
nearly all economic activity
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Centrally Planned Economy
Origins of the Centrally Planned Economy
Decline of Central Planning
 Failure to Create Economic Value
 Failure to Achieve Rapid Growth
 Failure to Satisfy Consumer needs
Focus on China
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Mixed Economy
Mixed Economy
Economic system in which land , factories and other
economic resources are rather equally split between
private and government ownership
Origins of the Mixed Economy
Decline of Mixed Economies
Move Toward Privatization
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Mixed Economy
Privatization
Policy of selling government-owned economic resources to
private companies and individuals
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MARKET ECONOMY
Origins of the Market Economy
Features of a Market economy
Government’s Role in a Market Economy
Economic Freedom
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MARKET ECONOMY
Market Economy Economic system in which the majority of a
nation’s land , factories, and other economic resources are privately
owned ,either by individuals or business.
Supply Quantity of a good or service that producers are willing to provide
at a specific selling price
Demand Quantity of a good or service that buyers are willing to purchase
at a specific selling price
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MARKET ECONOMY
Origins of the Market Economy
Features of a Market Economy
 Free choice
 Free enterprise
 Price flexibility
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MARKET ECONOMY
Government’s Role in a Market Economy
Enforcing Antitrust Laws
Preserving Property Rights
Providing a Stable Fiscal and Monetary Environment.
Preserving Political Stability.
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DEVELOPMENT OF NATIONS
National Production
Purchasing Power Parity
Human Development
Classifying Countries.
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DEVELOPMENT OF NATIONS
Economic Development
Measure for gauging the economic well-being of one
nation’s people as compared with that of another nation’s
people.
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National Production
Uncounted Transactions
Question of Growth
Problem of Averages
Pitfalls of Comparison
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National Production
Uncounted Transactions Many of a nation’s transactions do not
get counted in either GDP or GNP. Some of the activities not
included are:
 Volunteer work
 Unpaid household work
 Illegal activities such as gambling and black market transactions
 Unreported transactions conducted in cash
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Purchasing Power Parity
Purchasing Power
value of goods and services that can be purchased with one unit
of a country’s currency
Purchasing Power Parity (PPP)
Relative ability of two countries’ currencies to buy the same
“basket” of goods in those two countries.
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Human Development
Human Development Index (HDI)
Measure of the extend to which a people’s needs are satisfied
and the degree to which these needs are addressed equally
across a nation’s entire population
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Classifying Countries
Developed Country
Newly Industrialized Countries
Developing Countries
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Classifying Countries
Developed Countries
Country that is highly industrialized highly efficient , and
whose people enjoy a high quality of life
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Classifying Countries
Newly Industrialized Country (NIC)
Country that has recently increased the portion of its national
production and exports derived from industrial operations
Emerging Markets
Newly industrialized countries plus those with the potential to
become newly industrialized
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Classifying Countries
Developing Country
Nation that has a poor infrastructure and extremely low
personal incomes
Technological Dualism
Use of the latest technologies in some sectors of the economy
coupled with the use of outdated technologies in other sectors
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ECONOMIC TRANSITION
Obstacles to Transaction
Focus on Russia
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ECONOMIC TRANSITION
Economic Transaction
Process by which a nation changes its fundamental
economic organization and creates new free-market
institutions.
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Obstacles to Transition
Lack of Managerial Expertise
Shortage of Capital
Cultural Differences
Environmental Degradation
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Focus on Russia
Rough Transaction
Challenges Ahead for Russia
One Bright Spot
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Focus on Russia
Rough Transaction
Challenges Ahead for Russia
One Bright Spot
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THE END
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