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CHAPTER 4:
Economics and Politics
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Key Terms
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political system
economic system
market economy
centrally planned
economy
mixed economy
democracy
autocracy
underdeveloped
countries
Chapter 4:
ECONOMICS AND POLITICS
 developing countries
 developed countries
 gross domestic product
(GDP)
 business cycle
 absolute advantage
 opportunity cost
 comparative advantage
 lobbying
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Chapter Objectives
By the time you finish this chapter, you should be able to:
 Evaluate the advantages and disadvantages, in
both developed countries and developing
countries, with regard to business opportunities
 Analyze the rationale for, and the impact of, Canadian
government initiatives and policies relating to international trade
 Assess the ways in which political,
economic, and geographic factors
influence international business methods
and operations
 Describe the roles corporations can play in setting international
and domestic policy
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Economic and Political Systems
____________________
The type of government by
which a country is run
____________________
The way a country organizes its resources and
distributes goods and services to its citizens.
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Economic and Political Systems
The answers to the following questions define a
country’s economic system:
1. What should the country produce and in what
quantities?
2. How should _______________such as labor
and capital _______________?
3. How should goods and services be distributed
throughout the country?
4. What should be the price of the goods and
services?
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Parag Khanna
(Geopolitical researcher and political advisor)
 Do we live in a borderless world?
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Economic and Political Systems
Market economy
An economic system determined
by ________________, in which
businesses, consumers, and
government act independently of
one another, and market forces
and self-interest determine what
goods are created and sold.
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Economic and Political Systems
In a market economy:
 Corporations and people are
encouraged to own private
property
 Profit belongs to business
_____________ and they
can _______how to spend it
 Companies compete in terms
of quality, services, price,
reputation, and warranties.
Consumers have greater
selection and companies
have an incentive to
_________________.
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Economic and Political Systems
Centrally planned economy
An economic system in which the ___________
_____________ all elements of the economy, including
prices, wages, and production.
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Economic and Political Systems
In a centrally planned economy:
 Ownership of property is ________
 All profit belongs to the ____________;
 all workers are employed by the
government
 Competition is _________; government
determines price, quality, style, and amount of
goods and services
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Economic and Political Systems
Mixed economy
An economic system that sits between a _________
economy and a _________ planned economy,
combining government intervention and private
enterprise.
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Economic and Political Systems
In a mixed economy:
 Property is owned by
individuals, corporations, or
government
 Profit is ___________, but
___________to support
government projects and
programs
 Strong competition amongst
corporations; government may
also be a competitor
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
ECONOMIES OF THE WORLD
Place the flags under the heading that best represents their economy.
Command
Chapter 4:
ECONOMICS AND POLITICS
Market
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Mixed
Economic and Political Systems
Political system
The type of ___________ by which a country is run.
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Economic and Political Systems
_________________
A state governed by all eligible
members of the population
through _______ representatives.
 Characterized by free and fair _________, the rule
of law, free speech and press, the right to
assembly, and _________ of religion
 Politicians may be more concerned with re-election
than the good of the country
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Economic and Political Systems
______________
A state governed by a single individual or a small
group of people with ______________ power.
 Usually has strong ________ presence
 Strives to control all aspects of citizens’ lives
 Citizens have no influence on government
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Classifications of Economic Development
_______________countries
© iStockphoto.com
Also referred to as the _______________________
_________ countries, nations that are at the lowest
level of the world’s economies (below the poverty
line)
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Classifications of Economic Development
Underdeveloped countries are characterized by:
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Severe poverty
Lack of social services
Poor infrastructure
Low levels of literacy
Limited access to technology
Agriculture- or resource-based economies
Long-term political issues, such as dictatorships and
war
 Geographically – experience environmental or natural
catastrophes Fundamentals of International Business
Chapter 4:
ECONOMICS AND POLITICS
Copyright © 2010 Thompson Educational Publishing, Inc.
Classifications of Economic Development
Developing countries
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Also known as emerging or ____________________,
nations in transition from a poor economy to a
prosperous one.
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Classifications of Economic Development
____________countries are characterized by:
 Improved literacy rates
 Increased access to health care and other social
services, and technological advancement
 A move away from a resource-based economy to
a manufacturing base
 Population moving from rural areas to cities
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Classifications of Economic Development
_____________countries
Also known as industrialized or ________________
____________, nations that are characterized by a
high per capita income or strong gross domestic
product (GDP).
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Classifications of Economic Development
Developed countries are characterized by:
© iStockphoto.com
 A reliance on secondary and predominantly
tertiary industries, rather than primary industries
 High standards of living
 High literacy rates
 Major advancements in
health care and technology
 World leaders with strong
trade alliances
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Classifications of Economic Development
Gross domestic product (GDP)
______________________________
_____________________________.
It indicates the STRENGTH of a nation’s economy
to help determine it’s goals and development
programs
GDP per capita
Chapter 4:
ECONOMICS AND POLITICS
=
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Classifications of Economic Development
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Homework
 List 10 countries for each economic
classification. (Your portfolio country should
be one of the them!)
 P. 118 #19
Chapter 4:
ECONOMICS AND POLITICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.