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Every society must deal with providing goods and services for its people Each society must also develop an economic system that can decide how to use the limited resources of that society as well. Three basic questions must be answered: 1) What goods and services will be produced? 2) How will goods and services be produced? 3) Who uses the goods and services that are produced? • In a traditional economy, most of the economic decisions are made based on custom and on the habit of how such decisions were made in the past. • Goods and services are exchanged instead of using cash as a payment in a traditional economy • This is known as bartering • As areas become more urbanized, however, bartering gives way to cash as payment. • In the Middle East, traditional economies can still be found in rural areas of many countries in this region • No country today can be described as having a traditional economy A command economy is one in which government planning groups make most of the economic decisions for the workers This group decides which goods and services should be produces, as well as prices for the goods and wages paid to the workers No individual could decided to start a new business The government decided what and where to produce the goods. The government decides what jobs the workers do and where the goods produced would be sold The third basic type of economic system is a market economy. In a market economy, economic decisions are made by individuals who decide what to produce and what to buy Other names for a market economy are capitalism, free enterprise, or laissez-faire (French phrase that means to allow them to do as they please) Individuals who want to begin their own business may do so - they take economic risk as they invest in their new business If new businesses are successful, the people who organized and funded it will be successful and make a profit If the business fail, the investors will lose money Today, no countries in the world have economic systems that are purely traditional, purely command, or purely market systems India is a good example of a mixed economy in Asia The government makes some decisions about agriculture and industry, but free enterprise and entrepreneurship are very common. Nearly all countries today have mixed economies – they have characteristics of a free market and free enterprise as well as some government planning and control Not every country can produce all of the goods and services it needs Because of this, countries specialize in producing those goods and services they can provide best and most efficiently They look for others who may need these goods and services so they can sell their products The money earned by such sales then allows the purchase of goods and services the first county is unable to produce In international trade, no country can be completely self-sufficient (produce all the goods and services it needs) Specialization creates a way to build a profitable economy and to earn money to buy items that cannot be made locally •Some countries in Southwest Asia are very rich in oil and natural gas, but they lack farmland and the ability to produce enough food •Saudi Arabia is able to specialize in the production of oil and natural gas and sell these products at great profit on the world market •The money earned in this trade can then be used to purchase food and the technology needed to make their agriculture system more efficient •Israel has little in the way of oil wealth, but they have become leaders in agricultural technology even though they have a limited supply of land suitable for farming •They can sell this technology to earn the money to supplement their limited production of food Israeli Desert cabbage Trade barriers are anything that slows down or prevents one country from exchanging goods with another Some trade barriers are put in place to protect local industries from lower priced goods made in other countries Other times trade barriers are created due to political problems between countries Trade is stopped until the political issues are settled A tariff is a tax placed on goods when they are brought into (imported) from one country to another country The purpose of a tariff is usually to make the imported item more expensive than a similar item made locally This sort of a tariff is called a protective tariff because it protect local manufacturers from competition coming from cheaper goods made in other countries A quota is a different way of limiting the amount of foreign goods that can come into a country A quota sets s specific amount or number of a particular product that can be imported or acquired in a given period of time A third type of trade barrier is called an embargo An embargo is when one country announces that it will no longer trade with another country in order to isolate the country and cause problems with that country’s economy Embargoes usually come about when two countries are having political disputes Embargos often cause problems for all countries involved The US currently has embargos against Cuba, Iran, & North Korea An example is when OPEC launched an oil embargo in 1973 against nations that supported Israel in the Yom Kippur War $Most of the countries in Asia have their own type of currency (money). $In order for them to pay for goods as they trade with each other, they have to establish a system of changing from one type of currency to another $This system is know as an exchange rate $They also have to be able to exchange their currencies with those used by other countries around the world Human capital means the knowledge and skills that make it possible for workers to earn a living producing goods or services The more skills and education workers have, the better they are able to work without mistakes and to learn new jobs as technology changes Companies that invest in better training and education for their workers generally earn more profits Good companies also try to make sure working conditions are safe and efficient, so their workers can do their jobs without risk Companies that have invested in human capital through training and education are most likely to have profitable businesses and more satisfied workers than companies that do not make these investments Countries where training and education are easily available often have higher production levels of goods and services, therefore higher gross domestic product, than countries that do not offer these opportunities Capital goods (the factories, machines, and technology that people use to make products to sell) are important to economic growth. Advanced technology and the organization of this technology into factories where many workers can work together increases production and makes the production more efficient Producing more goods for sale in a quicker and more efficient way leads to economic growth and greater profit This greater profit leads to a higher GDP Middle Eastern countries have invested heavily in Capital Goods in such areas as oil production, communications, and the defense industry. Distribution of natural resources throughout Asia plays a major part in determining the type of work people do and how comfortable they are able to live A natural resource is something that is found in the environment that people need Water, trees, rich soil, minerals, and oil are all examples of natural resources One of the most valuable resources in this part of the world is rich farmland Literacy, or the ability to read and write, has a big effect on the standard of living of a country Those who cannot read or write have a very difficult time finding decent jobs Lack of education also prevents many young people from becoming the engineers, doctors, scientist, or entrepreneurs that modern economies need in order to bring improvements to their countries In many parts of the world, education is only available to those who can afford to pay for it themselves In those countries, the literacy rate is often quite low Countries that have stronger economies usually make money available so that anyone who wants an education can go to school One way to measure the standard of living is the Gross Domestic Product, or GDP The GDP is the value of all goods and services produced within a country in a given year and converted into US dollars for comparison When divided into a value per capita (or per person), it can be used as a measure of the living conditions in a country The higher the GDP value, the better the living conditions in the country Part 4 - Middle East Economics • There are many different types of economic systems in the Middle East. • Many countries have mixed economies with different levels of government control. • Some countries are less developed than others in the region. • Middle Eastern countries have thrived on producing exports to other countries. • Cash crops have included grain, silk, and cotton. • For the last sixty years, the region’s main export has been oil. • The region imports much of its food and other essential products. Oil • Oil is one of the most important and valuable natural resources in the Middle East • Oil and Natural gas are called fossil fuels, which mean they were created when plants and animals that lived centuries ago decayed underground • Oil and natural gas are also considered non-renewable natural resources, meaning they cannot be replaced once they are taken out of the ground • Most of the world's industrial nations depend on a steady supply of oil and natural gas • The US has to import nearly half of all the oil it uses, almost 18 million barrels every day • Many countries of the Middle East have become very rich over the past 50 years as the world demand for oil and gas has increased • Over half of the world’s known oil reserves come from the Middle East Israel • Israel has a mixed-market economy that is also technologically advanced. • The Israeli government and private Israeli companies own and control the economy. • Israel does not have many natural resources. • Israel has to import grain, oil, military technologies, and many other goods. • The country is a producer of high-tech equipment, electronics, biomedical industries, and cut diamonds. • The service industry accounts for much of Israel’s economy – areas such as insurance, banking, retail, and tourism • -Israel relies heavily on US economic and military aid. Israel has wide access to education and an economy that depends on technology industries to make up for the country’s lack of natural resources Many Israelis work in industries related to medical technology, agricultural technology, mining, and electronics They also have highly developed service industries (businesses that supply the needs of the rest of the working population) Israeli GDP is very high because they have invested heavily in their human capital Saudi Arabia • Saudi Arabia also has a mixed economy but leans toward government control. • Saudi Arabia’s main export is oil. • The oil industry has made the Saudi royal family quite wealthy. • In fact, several members of the royal family are among the wealthiest people in the world. • Oil accounts for well over half of the country’s economy. • Oil funds the country’s education, defense, transportation, health, and housing. • The government is trying to encourage more private businesses to boost the economy and decrease the countries dependence on oil. Saudi Arabia’s main industry is as an exporter of oil (petroleum) The technology involved in the oil industry is complicated and requires well-trained and educated labor force Saudi Arabia also has enormous building projects which require investment in human capital By contrast, some Saudi citizens still practice traditional economic activities such as farming and herding animals Because oil is such an important part of the world’s economy, the Saudi GDP is high Saudi Arabia • Some gulf countries invest money to make their economies more diverse. • In the last few decades, Saudi Arabia has begun encouraging the development of industries other than oil in order to make its economy stronger. • In 1976, the Saudi government crated the Saudi Basic Industries Corporation. • The SBIC invests in capital goods. • These capital goods have made the country a steady producer of steel, industrial gasses, plastics, and petrochemicals. Iran • Iran has great oil wealth, like Saudi Arabia, through there is also a more mixed economy that has grown in spite of government attempts to keep tighter control • Iran’s mixed-command economy has not been very efficient in recent years • Even though there is oil wealth, many Iranians do not share in the money- much of it goes toward the military Turkey • The government of Turkey controls the country’s economy. • Turkey’s economy, however, is not entirely a command economy. • A large part of the country’s economy is based on farming. • The Turkish government has had disputes with other over its use of natural such as the Euphrates • Clothing and textiles are the countries industries. • The service industry makes up about half of Turkey’s economy, as it does Israel's economy. many countries resources, River. major Sanctions • Economic sanctions are penalties applied by one country (or group of countries) on another country. • Economic sanctions may include various forms of trade barriers. • Economic sanctions are generally imposed for a variety of political and social issues Examples of Sanctions: • • • • • The fifty-year-old United States embargo against Cuba. The United Nations imposed economic sanctions upon Iraq after the first Gulf War as an attempt to make the Iraqi government co-operate with the UN weapons inspectors’ monitoring of Iraq's weapon program. There is a United Nations sanction imposed 1999 against all Al-Qaeda and Taliban associated individuals. All nations are obliged to freeze bank accounts and other financial instruments controlled by or used for the benefit of anyone on the list. The United States has imposed economic sanctions against Iran for years, on the basis that the Iranian government sponsors groups who work against US interests. North Korea has been the subject of international sanctions since the Korean War. The 1973 Oil Crisis • Some trade barriers are political. • Sometimes governments limit trade with other countries because they disagree with the actions or policies of those countries. • This is a trade barrier designed to purposefully hurt the economy of another country. • The 1973 oil crisis is one example of such a trade barrier. • The 1973 oil crises began on October 17, 1973. • OPEC announced that its member nations would no longer ship oil to countries that had aided Israel in its recent war with Egypt. • Those countries included the US and many in Europe. • OPEC raised the price of oil 70%. • As a result, the price of gasoline in the US quadrupled over several months. • These actions had a large impact on industrialized nations because of their growing dependence on oil and gas. • Western countries had been used to cheap and plentiful oil resources before the crisis. • Oil consumption had doubled in the US. • At the time, the US was using about 1/3rd of the world’s energy. • The crisis caused the value of the US dollar to drop. • It also had a widespread negative impact on the world economy. • OPEC started shipping oil to Western nations again in 1974. • Western economies began to get stronger again.