Everything but the kitchen sink: ECONOMICS of Africa, Asia, and Southwest Asia

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Everything but the kitchen
sink ECONOMICS of Africa, Asia, and
Southwest Asia
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ECONOMIC SYSTEMS
Command Economy Market Economy Traditional Economy
What to produce? Whatever the government decides What to produce? What people want to buy and sell (if people are willing to buy it, then businesses will make it) What to produce? What people need to survive
How to produce? However the government decides How to produce? Laws of Supply and demand How to produce? Hunting, farming, gathering (social roles determine who does what)
For whom to produce? Class reward system Waiting in line / rations For whom to produce? Determined by how much someone is willing to pay for it For whom to produce? Make their own products (what they have always made)
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Command Economy Market Economy Traditional Economy
Characteristics Government or other central authority makes decisions about and determines how natural, capital, and human resources will be used. Change can occur easily, because its government driven Little individual freedom No competition between businesses Business are not run to create a profit Consumers have few choices in the market Factories are concerned about meeting quotas (not profit) Shortages often occur because of poorly run factories and farms Government determines your job Government sets the price of goods and services Characteristics Resources (capital and natural) are owned by individuals Economic decisions are made by individuals competing to earn a profit Individual freedom is considered very important Profit is the motive for increased work Competition between businesses Many economic freedoms and choice in the market place Competition determines prices which increase the quality of the product No government intervention in the economy (hire kids, pollute, unsafe conditions) ALSO CALLED CAPITALIST ECONOMY Characteristics Found in rural, non-developed countries (some parts of Asia, South America, and Africa) Customs govern the economic decisions Technology not used Farming, hunting, and gathering are done the same way as the generation before Activities are centered toward the family or ethnic unit Men and women have different economic roles and tasks
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MIXED ECONOMIC SYSTEMS An economic system is
the way society organizes the production and
consumption of goods and services. Every economic
system answers three basic economic questions
What to produce? How to produce? and For whom to
produce? How a society answers the three basic
economic questions determines the societys
economic system. Historically, there are
three types of economic systemstradition,
command, and market (price) system. These
economic systems answer the basic economic
questions in different ways. In an economic
system based on tradition, decisions are based on
past behavior. In a command economy, decisions
about production and consumption are made by a
central planning unit, such as the government. A
market system answers the basic economic
questions in the marketplace. A market economy is
an economic system where most goods and services
and resources are exchanged through transactions
by people and businesses. Most economies
contain some features from a market and command
economic systems this is called a MIXED ECONOMY.
Mixed economic systems are best because a
mixture best satisfies the economic goals of a
society - such as economic freedom, equity, and
economic security.
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More Command than Market More Market than Command
What to produce? Government decides what to produce, BUT private/individual ownership of small business is allowed in limited amounts What to produce? Business owners / leaders decide what to produce based on sales, BUT the government controls some of the decision making
How to produce? Government controls most of the means of production (factories and tools), BUT small business owners /leaders make limited decisions on how to produce items How to produce? Business owners / leaders decide how to produce, BUT the government sets minimum safety requirements, minimum wage, and age to start work (child labor laws). Government also sets guidelines for product safety
For whom to produce? Government determines who receives which goods and services BUT a few items available outside the governments control (black market) For whom to produce? Consumers incomes determine who gets which goods and services (whoever can buy it) BUT government provides welfare benefits for the needy
EXAMPLES North Korea, Iran EXAMPLES South Africa, Nigeria, China, India, Israel, Saudi Arabia, Japan
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MIXED ECONOMIC SYSTEM CONTINUUM
0 100 Pure
Pure Command
Market Place the following countries on the
continuum.
South Africa (64) Nigeria (55) China (53) India (54) Israel (68) Saudi Arabia (64) Iran (45) Japan (73) North Korea (2)
Pick one of the countries that are 70 or higher
on the continuum and describe why it is so much
more market than command. Use your notebooks to
help you.
Pick one of the countries that are in the 50 on
the continuum and describe why it is almost
equally market and command. Use your notebooks to
help you.
Pick the country that is below 50 on the
continuum and describe why it is so much more
command than market. Use your notebooks to help
you.
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ECONOMIC SYSTEMS SAMPLE QUESTIONS The economic
system of communist countries is most closely
related to which of the following? A. command
B. market C. traditional D. supply and demand
You are a small business owner and you sell
computer gaming consoles. You have chosen to sell
this product to teenagers and young adults. You
decided to sell consoles because they are easy to
build, are popular and make a high profit. You
decide on the prices for your consoles based ONLY
on the following factors How many consoles you
have in your warehouse, and How many consoles
you are sell each week Which type of economy do
you have? A. subsistence B. command C. market
D. closed What do the economic systems of the
Japan and Israel have in common? A. All are
examples of pure market economies. B. All are
examples of mixed economies that are mostly
market economies with some elements of
command economies. C. All are examples of mixed
economies that are mostly command economies with
some elements of market economies. D. All
are examples of pure command economies. In this
country a single or centralized government
authority decides what is produced. Which term
identifies this type of economic system? A.
Traditional B. Command C. Market D. Pubic
South African economic policy is conservative
focusing on controlling inflation, maintaining a
budget surplus, and using state-owned enterprises
to deliver basic services to low-income areas as
a means to increase job growth and household
income. However, companies are freed to choose
what to produce, how to produce, and for whom to
produce. Where does this policy place South
Africa on a continuum between pure market and
pure command? A. Almost pure traditional B.
Pure market C. More market than command D. Pure
command
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THE RELATIONSHIP BETWEEN GDP AND PRODUCTIVE
RESOURCES
GDP Gross Domestic Product What is GDP? estimate of the total market value of all final goods and services produced in the borders of ONE country in ONE year. Translation estimate of all the stuff a country makes in a year. Why do people calculate GDP? (why do we care?) its an indicator of an economies health measures a countrys economic output (how much stuff they make in a year) it helps us compare two economies higher the GDP the better the economy What factors do not affect GDP? Imports they are not made IN the country Resold or used items these were counted in the year they were produced when they were new cant count twice Per Capita GDP GDP divided by the countys population Average value of goods and services produced in one country in one year PER PERSON. (This is NOT average income) Per Capita GDP is a BETTER way to compare two economies than with just GDP. See example GDP Gross Domestic Product What is GDP? estimate of the total market value of all final goods and services produced in the borders of ONE country in ONE year. Translation estimate of all the stuff a country makes in a year. Why do people calculate GDP? (why do we care?) its an indicator of an economies health measures a countrys economic output (how much stuff they make in a year) it helps us compare two economies higher the GDP the better the economy What factors do not affect GDP? Imports they are not made IN the country Resold or used items these were counted in the year they were produced when they were new cant count twice Per Capita GDP GDP divided by the countys population Average value of goods and services produced in one country in one year PER PERSON. (This is NOT average income) Per Capita GDP is a BETTER way to compare two economies than with just GDP. See example
CHINA GDP 8.791 trillion Per Capita GDP 6,500 GERMANY GDP 2.812 trillion Per Capita GDP 34,200
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Productive Resources
Human Capital (resource) labor/work done by people to produce products Examples teacher, engineer, lawyer, doctor, waiter, factory worker
Capital Goods (resources) the machines, tools, factories, and technology that are used to make other goods and services Examples flour, drill, oven, truck, gasoline, computer, hammer
Natural Resources raw materials used to make products or gifts of nature Examples trees, water, minerals, animals, fruit
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INVESTMENT IN HUMAN CAPITAL
Worker have education/training are healthy and have safe working conditions Workers are able to produce a higher quantity and higher quality goods and services More products are made and international trade increases GDP goes up

• What are the ways a country or business can
  invest in its human capital?
• Education and training for its citizens
• Ensure safe working conditions
• Invest in the health of its workforce (healthy
  workers can go to work)

INVESTMENT IN CAPITAL GOODS
Businesses buy new factories, tools, and machines Workers are able to produce faster and more efficiently More products are made and international trade increases GDP goes up

• What are the ways a country or business can
  invest in its capital goods?
• Encourage building of new factories
• Uses new machines and tools
• Encourage use of high tech tools
• Improve its infrastructure (roads, bridges,
  electricity grids, etc)

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ABSENCE OR PRESENCE OF NATURAL RESOURCES
A country has no or limited natural resources The country must import the natural resources they need Importing resources adds to the cost of producing goods and service (makes more expensive) Countries that import their natural resources tend to have lower standards of living
Countries that have formidable obstacles (climate, terrain, and distance which hinder exploitation of natural resources and countries that lack of access to) natural resources tend to have lower standards of living. The lack of natural resources also hinders trade. Countries that have formidable obstacles (climate, terrain, and distance which hinder exploitation of natural resources and countries that lack of access to) natural resources tend to have lower standards of living. The lack of natural resources also hinders trade.
Brazil is building new factories and using newer technology. These are examples of Opportunity costs. Gross domestic product. Investment in human capital. Investment in capital goods. A sixth-grade class decides to open a popcorn stand. The stand and the popcorn popper are examples of which factor of production? natural resources human resources capital resources entrepreneurship
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• Entrepreneurship
• Entrepreneurs are people who have an idea for a
  business, are willing to take a risk, and combine
  human, natural, and capital resources to produce
  a new good or service. Entrepreneurs are only
  able to succeed in a more market system (closer
  to market than command on the economic
  continuum), where they have the freedom to
  control their own economic decisions.
• Benefits of Entrepreneurship in an economy
• Creates new jobs / hires more people
• Creates new products and increases trade
• Tax money from their business helps the
  government
• Encouraging Entrepreneurship in an Economy
• Make the laws to ensure it is quick and easy to
  start a new business
• Have courts and laws that protect privately owned
  property and investments

A countrys laws make it easier for the entrepreneur to start a business and have laws to protect their investments An entrepreneur believes their idea for a new product will earn a profit and want to risk their and resources to start a business If the business is successful, the entrepreneur will create new products and hire new workers (creates new jobs) GDP goes up. International trade increases. Taxes are collected to help the government earn money
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Why is entrepreneurship important to a countrys economy? Build highways Improve schools Invest in capital goods Provide better health care Jose is an auto mechanic in a nearby larger town. He has decided his own small town needs its own car repair shop. Jose bought the building and opened his shop. Jose is an example of Trade surplus Entrepreneur Gross domestic product Opportunity costs You are watching a speech by the Prime Minister of Australia on T.V. with your parents about improving the Australian economy. In the speech, the Prime Minister says We must take make is easier for Australians to open small businesses. My plan will give tax breaks and incentives to Australians who want to start their own small business... The Prime Ministers plan is based on the conclusion that Investing in human capital will increase the countrys gross domestic product (GDP). Promoting entrepreneurship will improve economic development. Investing in capital goods will increase the countrys gross domestic product (GDP). A tariff on goods imported from other nations will help businesses
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TRADE BARRIERS
tariff - TAX ON IMPORTS
quota - LIMIT ON IMPORTS
embargo - CUTS OFF ALL TRADE
Determine each type of trade barrier below
The United Kingdom Customs Service has found toxic lead-based paint in toys imported from a Chinese toy-making company. These toys are intended for sale in the United Kingdom. Exposure to the paint over a long period of time could be fatal to children under 6 years old. What type of trade barrier would guarantee that no child in the United Kingdom would be exposed to the deadly lead-based paint?
You are the governor of New South Wales, Australia. Living in Sydney, you have learned that surfing has a huge impact on your states local economy. As governor, you have two economic goals Protecting local Australian surfboard manufacturers from foreign competition, Generating more tax revenue for your state government. What type of trade barrier could you use that would accomplish both of these goals?
In order to protect a nations car manufacturing industry from foreign car producers, the government allows 50,000 imported cars a year. This is an example of what kind of trade barrier?
embargo
tariff
quota
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Why would a country want trade barriers such as tariffs?
Protect local industry and jobs from foreign competition Tariffs make the foreign product more expensive because the cost of the tax is passed on to the consumer Tariffs generate additional money for the government
Why would a country want trade barriers such as quotas?
Protect local industry and jobs from foreign competition Quotas force consumers to buy the domestically made product because there is not a lot of the foreign product available Make the foreign product more expensive (supply and demand)
Why would a country want a trade barrier such as an embargo?
Force a another government to change its policies or conform to international policy
Why would a country want free trade (no trade barriers)?
Lowers the price of imported goods and services Standard of living for the nation improves, although some jobs may be lost
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LITERACY RATE STANDARD OF LIVING Literacy rate
of a country is the percentage of people over the
age of 15 who can read and write. The economy of
a nation impacts the ability of a country to
improve literacy and standard of living. There is
a relationship between literacy to the standard
of living and the cultural development of a
country. Literacy rate is a factor affecting
human capital which in turn impacts standard of
living and culture.
Country Total Literacy Rate for the Country Literacy Rate for Men Literacy Rate for Women
IRAN 77 84 70
SAUDI ARABIA 79 85 71
ISRAEL 97 99 96
NIGERIA 68 76 61
SOUTH AFRICA 86 87 86
CHINA 91 95 87
INDIA 61 73 48
NORTH KOREA unavailable unavailable unavailable
JAPAN 99 99 99
How does the high literacy rate in Japan affect
its economy and enhance the standard of living
for its citizens? A. Japans high
literacy rate contributes to its
economic success and promotes a high standard of
living. B. The literacy rate has little
effect on Japans economy thus, it
does not affect the standard of living. C.
Japans high literacy rate is the result of its
poor economy. D. The small percentage of
people who cannot read are hindering
most of Japans economic growth.
The relationship between the literacy rate and
standard of living in Nigeria is A.
Literacy rate has no affect on the standard of
living. B. The higher the literacy rate
the higher the standard of living.
C. The standard of living is independent
of literacy rate. D. Low literacy rate
creates a higher standard of living.
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CURRENCY EXCHANGE / EXCHANGE RATES
Currency is the money people use to make trade easier. In the United States, we use U.S. dollars to buy goods and services. When we Americans work at a job, we are paid in dollars. Most of the time, when you are in a different country, you cannot buy goods and services with currency from your own country. So what do you do? You trade it in, or exchange it! With each exchange however, the bank charges a fee. A business that exchanges a lot of money will pay many fees. We all know that there is not a currency for Earth each country has its own currency except Europe. For international trade to be successful, countries must agree on a system of how much one currency trades for another. The exchange rate is based off the laws of supply and demand the more people (traders of currency) are willing to pay for a dollar, the more valuable it becomes. Remember back to our exchange rate simulation. You were willing to give me a lot of other countries currency to get a US dollar. In that simulation, the dollar was more valuable than the other currency, because the demand for dollars was higher than the demand for the others. There are many foreign exchange markets where money from around the world is traded many times a day how well or how poorly a currency is trading in these markets determines the exchange rate. The exchange rate between currencies fluctuates (changes) over the day.
EXAMPLE You own Olympic Fish Company, a fleet of fishing ships in the islands of Greece. Greece is a member of the European Union, and uses the Euro as its currency. You make your living selling fish to your customers, mostly in other countries. Today you have received two orders EXAMPLE You own Olympic Fish Company, a fleet of fishing ships in the islands of Greece. Greece is a member of the European Union, and uses the Euro as its currency. You make your living selling fish to your customers, mostly in other countries. Today you have received two orders
Order 1 To Olympic Fish Co. Piraeus, Greece From Champs Elysees Fish Market, France 1oo tons of sea bass Note France is an EU member nation using the Euro. Order 2 To Olympic Fish Co. Piraeus, Greece From Red Lobster Atlanta, Georgia USA 100 tons of sea bass Note Payment in U.S. dollars ONLY.
Based on what you see in the two orders above, which of the orders is easier for you to fill? A. Order 1, because trade with the France is easier since it uses the Euro. B. Order 1, because the United States has placed an tariff on fish imported from Greece. C. Order 2, because France has placed a quota on fish imported from Greece. D. Order 2, because trading with the United States is easier since is uses the U.S. dollar. Based on what you see in the two orders above, which of the orders is easier for you to fill? A. Order 1, because trade with the France is easier since it uses the Euro. B. Order 1, because the United States has placed an tariff on fish imported from Greece. C. Order 2, because France has placed a quota on fish imported from Greece. D. Order 2, because trading with the United States is easier since is uses the U.S. dollar.
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SPECIALIZATION Specialization encourages trade
between nations
The division of labor refers to the practice
that the tasks of producing a good or service are
divided up into separate tasks. When workers
focus on performing separate tasks,
specialization occurs. Within the economy as a
whole, the division of labor explains why even if
you bake your own bread, you typically don't grow
your own wheat, grind it into flour, build your
own oven, make your own bread-pans and so on.
Instead, people specialize in a few skills and
then take the wages that they earn from those
skills to purchase the other products that they
desire from other specialists.

• There are three reasons why the division of labor
  increases output
• workers who specialize on one job become much
  better at doing it
• with specialization, the time that it would take
  to switch between jobs is eliminated
• workers who specialize on one job often invent
  more effective ways or new machines for doing the
  job.

Specialization benefits everyone when the skills and strengths of people match their job in a community. Keep in mind that when people do what they are good at and then trade their output with others who are doing what they are good at, we are better off than we would be if everyone tried to do everything for themselves. Its better for the overall economy if individual people produce one thing well and trade it, than to produce poorly everything they use in day themselves. Specialization encourages trade and can be a positive factor in a countrys economy. Specialization occurs when one nation can produce a good or service at a lower opportunity cost than another nation. However, one drawback is that we end up depending on each other to create the goods or services we need. But specialization is possible only when people are able to coordinate their production and consumption decisions with each other.
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Define it When a country focuses resources on creating fewer specific products and services than they consume make one thing well and trade for everything else Draw a Picture
Benefits Greater variety of products with trade Produce more in less time Better quality More free time for workers Drawbacks Dependent on others for important items Over-specialization (one-crop economies and lack of diversification) can lead to economic trouble
SPECIALIZATION
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OPEC (organization of petroleum exporting
countries)
import products brought into a country for sale
export products leaving a country for sale
trade voluntary exchange of goods and services
free trade trade that does not have trade barriers (quotas, tariffs, embargos)
What is OPEC? The Organization of Petroleum Exporting Countries (OPEC) was created in 1960 by some of the countries with large oil supplies who wanted to work together to try to regulate the supply and price of oil they export to other countries. The central organization of the world oil trade is the OPEC. OPEC is an international organization that has many members not all oil producing nations are OPEC members and not all OPEC members are Middle Eastern countries. The members of OPEC include the Southwest Asian countries of Iran, Iraq, Saudi Arabia, and Kuwait. OPECs purpose is to help its members develop policies on oil production and trade that will benefit each other. The organization manipulates the price of oil according to market demand, availability, and other factors.
Function of OPEC? By controlling the production of oil, OPEC lowers or raises the price of oil (based on the laws of supply and demand). OPEC decides how much oil they will produce and that determines the price on the world market. When they produce less, the price on the world market goes up. When they increase production, the price on the world market goes down.
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Role of oil in the economies of SWA Some countries in SWA have access to oil fields while others do not. By comparing the GDPs of Israel, Iran, and Saudi Arabia and the presence or absence of oil, you should notice an impact on the GDP. Be able to explain how the presence or absence of oil affects economic development. While oil is a extremely valuable resource, countries like Israel have made up for the lack of oil by creating a highly developed industrial sector producing high-tech goods. Role of oil in the economies of SWA Some countries in SWA have access to oil fields while others do not. By comparing the GDPs of Israel, Iran, and Saudi Arabia and the presence or absence of oil, you should notice an impact on the GDP. Be able to explain how the presence or absence of oil affects economic development. While oil is a extremely valuable resource, countries like Israel have made up for the lack of oil by creating a highly developed industrial sector producing high-tech goods. Role of oil in the economies of SWA Some countries in SWA have access to oil fields while others do not. By comparing the GDPs of Israel, Iran, and Saudi Arabia and the presence or absence of oil, you should notice an impact on the GDP. Be able to explain how the presence or absence of oil affects economic development. While oil is a extremely valuable resource, countries like Israel have made up for the lack of oil by creating a highly developed industrial sector producing high-tech goods.
Israel GDP 170.3 billion (2008 est.) Oil No significant proven reserves. Saudi Arabia GDP 527 billion (2008 est.) Oil Largest producer and exporter of oil in the world. Approximately 90 of government revenues come from the oil industry. Iran GDP 852.6 billion (2008 est.) Oil The economy relies primarily on the oil industry. Over 85 of government revenues come from this sector. Over 80 of exports are petroleum and petroleum products.