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ECO 1003
Handouts for
Chapters 3-4-5
Chapter 3
The Lion, the Dragon, and the Tigers: Economic
Growth in Asia
• Tigers: Singapore, Malaysia, Thailand and
Indonesia
• A combination of low wages and high
export sales represented the fast track to
economic growth and prosperity
• Dragon of Asia: China
Chapter 3
The Lion, the Dragon, and the Tigers: Economic
Growth in Asia
• Direct foreign investment (FDI)
• Resources provided to individuals and firms in a
nation by individuals or firms located in other
countries, often taking the form of foreign
subsidiary or branch operations of a parent
company
• Purchasing power
• The amount of goods or services that can be
purchased with a unit of currency
Chapter 4
Outsourcing and Economic Growth
• Economic growth
• Sustained increases over time in real per capita
income
• Per capita income
• Average income per person
• Trade barrier
• Any rules having the effect of reducing the
amount of international exchange; tariffs and
quotas are trade barriers
Chapter 4
Outsourcing and Economic Growth
• Outsourcing
• The practice of having workers located in foreign lands
perform tasks typically services that have traditionally
been performed by domestic workers
• Insourcing
• Insourcing is the opposite of outsourcing
• Insourcing is a business decision that is often made to
maintain control of critical production or competencies
• Insourcing is widely used in production to reduce costs
of taxes, labor and transportation
Chapter 4
Outsourcing and Economic Growth
• Outsourcing is defined as the purchase of foreign
labor by domestic companies and, other than dealing
with the labor market, is really no different in principal
than purchasing goods or services in a foreign
market
• The presence of a foreign goods market effectively
increases the domestic supply of goods, reduces
domestic prices, increases domestic quantities
consumed, and raises domestic consumer surplus
while reducing domestic producer surplus
• The same is true when domestic countries
purchase foreign labor; the effective supply of labor
rises, wages fall, foreign workers, firms, and their
consumers benefit
Chapter 4
Outsourcing and Economic Growth
• Outsourcing
• Arguments that preclude outsourcing have as
much economic merit as protectionist
arguments that prevent a nation’s citizens from
buying foreign goods
• Arguments against outsourcing usually ignore
economic analysis and can be summarized as a
fear of wage equalization across countries
Chapter 5
Poverty, Capitalism, and Growth
• Abject poverty
• Surviving on the equivalent of $1 or less of income
per person per day
• Real per capita income
• GDP corrected for inflation and divided by the
population- a measure of the amount of new
domestic production of final goods and services per
person
• Standard of living
• A summary measure of the level of per capita
material welfare, often measured by per capita real
GDP
Chapter 5
Poverty, Capitalism, and Growth
• Industrial Revolution
• The widespread radical socioeconomic changes that
took place in England and many other nations
beginning in the late eighteenth century, brought about
when extensive mechanization of production systems
resulted in a shift from home-based hand manufacturing
to large-scale factory production
• Property and contract rights
• Legal rules governing the use and exchange of property
and the enforceable agreements between people or
businesses
Chapter 5
Poverty, Capitalism, and Growth
• European Union (EU)
• A supranational entity resulting from an agreement
among European nations to closely integrate the
economic, political and legal systems of the 27
individual member nations
• Institutions of the EU include the European
Commission, the Council of the European Union, the
European Council, the Court of Justice of the European
Union, the European Central Bank, the Court of
Auditors, and the European Parliament
• The European Parliament is elected every five years by
EU citizens
Chapter 5
Poverty, Capitalism, and Growth
• The EU traces its origins from the European Coal and
Steel Community (ECSC) and the European Economic
Community (EEC), formed by the Inner Six countries in
1951 and 1958 respectively
• In the intervening years the community and its successors
have grown in size by the accession of new member
states and in power by the addition of policy areas to its
remit
• The Maastricht Treaty established the European Union
under its current name in 1993
• The latest major amendment to the constitutional basis of
the EU, the Treaty of Lisbon, came into force in 2009
Chapter 5
Poverty, Capitalism, and Growth
• The European Union is composed of 27 sovereign member
states: Austria, Belgium, Bulgaria, Cyprus, the Czech Republic,
Denmark, Estonia, Finland, France, Germany, Greece,
Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta,
the Netherlands, Poland, Portugal, Romania, Slovakia,
Slovenia, Spain, Sweden, and the United Kingdom.
• The original six founding states—Belgium, France, West
Germany, Italy, Luxembourg and the Netherlands
• Croatia will become the 28th member state of the EU on 1 July
2013 after a referendum on EU membership was approved by
Croatian voters on 22 January 2012
• There are five candidate countries: Iceland, Macedonia,
Montenegro, Serbia and Turkey