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A nation’s economic system greatly affects its
trade relationships.
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To identify different types of economic
systems
To explain how natural, human, and capital
resources affect a nation’s ability to trade
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To explain the stages of economic
development and their effects on trade
To differentiate between an absolute and a
comparative advantage
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You must understand a nation’s economic
system in order to effectively conduct
business there.
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Economic Systems and International
Trade
Understanding
economics will help
you understand
economic systems and
international trade.
economics
the study of how a
society chooses to use
resources to produce
and distribute goods
and services for
people’s consumption
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Economic Systems and International
Trade
There is a strong link between a country’s
form of government and its type of
economic system.
Economic systems influence the use of
resources and impact a country’s ability to
compete in international trade.
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Types of Economic Systems
Market
Economies
Mixed
Economies
Types of
Economic
Systems
Command
Economies
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Market Economies
The United States has a
market economy.
The ideas of capitalism,
or the free enterprise
system, are associated
with a market economy.
market economy
an economic system in
which economic
decisions are made in
the marketplace
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Market Economies
One force that drives
purchases by
consumers and
businesses is supply.
supply
the amount of goods
and services that
producers provide at
various prices
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Market Economies
The other force that
drives purchases is
demand.
The meeting place
between supply and
demand is the
equilibrium price.
demand
the amount or quantity
of goods and services
that consumers are
willing to buy at
various prices
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Market Economies
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Market Economies
Profit is the driving force of the market
economy.
There are different forms of profit:
– Personal
– Company
– Governmental
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Market Economies
Two other forces drive market economies :
Private property rights
Relatively free and competitive
marketplaces
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Market Economies
In any market, there are some goods that
require governmental regulation, such as
dangerous chemicals.
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Command Economies
A command economy
is also known as a
planned economy.
The government, or a
national leader, decides
what will be produced,
how, and for whom.
command economy
an economic system in
which a central
authority makes all key
economic decisions
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Command Economies
Two Types of Command Economies
Strong Command Economy
Moderate Command Economy
There is heavy government control.
State owns major resources.
Government owns much of the land, and
private property rights are limited.
State may control minerals and ores,
airlines, and other enterprise.
The goal is full employment.
The goal is full employment.
These countries are often communist
states.
These countries are often socialist states.
Cuba is an example.
France and Sweden are examples.
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Mixed Economies
Most countries have a
mixed economy.
Some argue that
socialism is a mixed
economy.
mixed economy
an economic system in
which the marketplace
determines some
economic decisions,
and the government
makes some decisions
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Mixed Economies
Characteristics of Mixed Economies
The government oversees defense, education, building and repairing
roads, fire protection, and other general services.
Everything else is bought and sold in the marketplace.
Either the government or the marketplace tends to dominates.
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Economic Resources
Natural
Resources
Human
Resources
Economic
Growth
Capital
Resources
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Natural Resources
Natural resources are raw materials found
in nature that are located on the ground
and in the water.
Nations rich with resources are able to
export raw materials and manufactured
goods made from those materials.
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Natural Resources
Countries with few natural resources must
import key resources, which makes everyday
goods more expensive.
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Natural Resources
Two Types of Natural Resources
Renewable (can be replaced)
Nonrenewable (will not grow back)
Agricultural products
Iron ore
Trees
Coal
Fish
Oil
Seaweed
Diamonds
Water
Gold and other minerals
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Human Resources
Human resources are:
Workers
Managers
Contractors
The term human resources
is distinct from the term
population.
Other employees
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Human Resources
Skilled Labor
There is a strong connection between a country’s literacy
level and the number of skilled workers in a population.
Unskilled Labor
Unskilled labor refers to laborers who have less education
and fewer skills that require training.
Physical Labor
Jobs that require physical labor require unskilled and
semi-skilled workers to perform tasks.
Mental Labor
Mental labor jobs require special knowledge, negotiation
skills, and creativity. Wages in these jobs are often higher.
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Capital Resources
Capital is the term for money, or funding,
that helps a company buy items needed to
start up and maintain a business.
Capital comes from investors and the sale
of stock to outside investors.
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Capital Resources
When a country has a high level of national
debt and a large deficit, it is more difficult to
obtain capital.
A lack of capital can restrict the
development of new businesses and
economic growth.
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Capital Resources
Entrepreneurial resources are the funds
that help start new companies.
Infrastructure refers to all the
large-scale public systems
and services necessary for
economic activity.
Good
infrastructure
provides for
economic growth.
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Economic Decisions
Scarcity
Factors
Affecting
Economic
Decisions
Opportunity
Costs
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Scarcity
Scarcity can refer to
time, money, natural
resources, human
resources, or capital
resources.
scarcity
a term used to
describe a situation
in which there is a
limited amount of a
commodity
Scarcity drives trends in
decision-making.
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Opportunity Costs
Opportunity cost is the cost associated with
taking one course of action instead of
another.
Managers and government officials use a
method called “cost-benefit analysis” to
determine whether the benefits are higher
than the cost.
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Economic Conditions
Economists look at several factors to describe the
economic well-being of a country.
Gross Domestic Product
Levels of unemployment
Cost of Living
Purchasing Power Parity
Inflation Rate
Balance of Trade
Interest Rate Levels
Level of Foreign Debt
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Gross Domestic Product
The total value of goods and services
produced in a country each year is known as
the country’s gross domestic product (GDP).
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Gross Domestic Product
To calculate the GDP, economists add the
total value of goods and services sold:
To consumers
By businesses
Increased productivity will
cause the GDP to rise.
From the government
To other countries
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Cost of Living
The cost-of-living index is a measure of
how much a typical family must spend to
live.
A rise in the cost of living means it costs
more to live.
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Inflation
Inflation is the increase in currency relative
to the availability of goods and services.
The Consumer Price Index (CPI) is a
measure of a country’s inflation rate.
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Interest Rates
An interest rate is the cost of borrowing
money, expressed as an annual
percentage.
Most economists believe that lower interest
rates are better for the majority of people.
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Unemployment Levels
The unemployment rate is a measure of
the number of people who are looking for
jobs but are unable to find them.
The unemployment rate is the difference
between the current rate compared to the
baseline rate.
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Purchasing Power Parity
Purchasing power parity (PPP) is an
estimate of the exchange rate needed to
equalize the purchasing power of
currencies from different countries.
Economic stability exists when PPP is
stable and changes very little over time.
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Balance of Trade
A balance of trade is based on the number
of imports as compared to the number of
exports.
A country is better off when the balance of
trade is near zero, which means balanced.
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Level of Foreign Debt
When a national government owes money to
foreign banks, individuals in other countries,
and other national governments, it has a
foreign debt.
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Economic Cycles
High employment, strong growth in
GDP, positive consumer environment
Unemployment
is very high
Peak
Rising
Recession
Decline
Decline
toward
another
recession
Companies begin
hiring and
economic activity
increases
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Stages of Economic
Development
Four Stages of Economic Development
Post-Industrialized
Value of total sales of services is greater than
the value of physical goods produced
Trade with foreign countries, manufacture of physical
Industrialized goods dominant, manageable unemployment
Small middle class, technological dualism, regional dualism,
Developing low savings rates, poor banking facilities
High unemployment, few natural and human resources, high
Underdeveloped poverty level, dependent on other nations
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Absolute or Comparative Advantage
A country has an absolute advantage when
it can produce a good or a service more
efficiently than any other country.
A comparative advantage is an advantage
gained by a product a country makes more
efficiently on a personal best level.
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