Political and Economic Analysis

1
Chapter 3

• Political and Economic Analysis

2
What is an Economy?
3
Economic Systems

• Economy (def) the organized way a nation
  provides for the needs and wants of its people
• How a nation makes economic choices that involve
  how the nation will use its resources to produce
  and distribute goods and services to meet the
  needs of its population

4
Resources

• Resources (def) things used in producing goods
  and services
• A countrys resources determine economic
  activities such as
• Manufacturing
• Buying
• Selling
• Transporting
• Investing
• Common to all nations and affect how business is
  done across the world!!

5
Resources

• Factors of Production (def)
• Land
• Labor
• Capital
• Entrepreneurship

6
Resources

• Land includes everything contained in the earth
  or found in the seas
• NATURAL RESOURCES
• Coal
• Crude oil
• Trees
• Natural Resources are used as the raw material
  for making goods and creating services that are
  MARKETED to customers!

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Resources

• Labor all the people who work
• Full and part-time workers
• Economies with well educated and trained labor
  have an advantage over other nations in
  attracting business
• Companies spend a lot of money training employees!

8
Resources

• Capital money to start and operate a business
  and goods used in the production process
• Factories, Office buildings, Computers, Other
  tools
• Without capital to run a business, marketers
  would not have the funds or resources to develop,
  advertise, or transport goods!
• Infrastructure (def) physical development of a
  country
• Necessary for production and distribution of
  goods and services

9
Resources

• Entrepreneurship (def) the process of starting
  and running a business
• Organize factors of production to create the
  goods and services that are part of an economy

10
Scarcity

• Different economies have different amounts of
  resources which leads to
• Scarcity (def) the difference between wants and
  needs and available resources
• FORCES A NATION TO MAKE ECONOMIC CHOICES!

11
How does an Economy Work?

• A nation must answer three questions when
  deciding how to use their limited resources
• Which goods and services should be produced?
• How should the goods and services be produced?
• For whom should the goods and services be
  produced?
• The way they answer them defines their economic
  system!

12
How does an Economy Work?

• Three broad categories of economic systems
• Traditional
• Market
• Command

13
How does an Economy Work?

• Traditional Economy (def) traditions and
  rituals answer the basic questions of what, how
  and for whom.
• Answers based on cultural or religious practices
• Passed from one generation to the next
• Assigned through tradition rather than choice!

14
How does an Economy Work?

• Market Economy (def) no government involvement
  in economic decisions.
• Individuals and companies own the means of
  production
• Businesses compete for consumers
• No government interference at all
• GOVERNMENT LETS THE MARKET ANSWER THE THREE
  QUESTIONS

15
How does an Economy Work?

• Command Economy (def) government makes economic
  decisions and decides what, when, and how much
  will be produced and distributed.
• Government controls factors of production
• Government makes decisions about use of FOP
• GOVERNMENT ANSWERS THREE QUESTIONS FOR THE MARKET

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How does an Economy Work?

• Mixed Economy
• No economy is purely traditional, market, or
  command
• Everyone is somewhat mixed
• We are mixed but lean towards MARKET
• Our government sets laws and regulations that
  businesses must follow
• They also regulate our food, air and water
  supplies to product consumers from unsafe
  products
• Labor laws minimum wage

17
Capitalism

• Capitalism is a political and economic philosophy
  characterized by marketplace competition and
  private ownership of business.
• The political system most frequently associated
  with capitalism is democracy. Capitalist
  countries include
• The United States
• Japan

18
Communism

• Communism is a social, political, and economic
  philosophy in which the government controls the
  factors of production. There is no financial
  incentive for people to increase their
  productivity because the government regulates and
  assigns
• Employment
• Medical care
• Education
• Housing
• Food
• Examples of modern communist countries are
• Cuba
• North Korea
• China

19
Socialism

• Socialist countries have an increased amount of
  government involvement in the economy, but the
  market is not completely controlled.
• Modern countries with socialist elements in their
  economy include
• Canada
• Germany
• Sweden