Middle Eastern
Economies
• See if you can tell which country or
countries our government favors by the
way each country is presented.
GPS and E.Q.
• GPS: SS7E5a. Compare how traditional,
command, and market economies answer the
economic questions of (1) what to produce, (2)
how to produce, and (3) for whom to produce.
• E.Q. How do traditional, command, and market
economies answer the economic questions of
(1) what to produce, (2) how to produce, and (3)
for whom to produce?
Vocabulary
• Tradition – something that has been passed down in a
culture from one generation to the next.
• Bartering – trading in goods and services
• Economic Specialization – producing goods a country
can make most efficiently so they can trade them for
goods made by others that cannot be produced locally.
• tariff: - tax on imports
• Quota – limit on number or amount of imported goods
• Embargo – government order halting trade with another
country
• Entrepreneur – someone who is willing to take a risk to
start a new business or product
Vocabulary
• Human capital – education and training
• Capital goods – factories, machinery, and
technology
• GDP – total value of all goods and
services produced in a country in a year
• GDP per capita – the GDP divided by a
country’s population
• Market economy – also called capitalism,
free enterprise, and laissez-faire
Vocabulary
• Traditional – an economic system in which most
economic decisions are based on custom and
habit
• Command – an economic system in which
government planning groups make economic
decisions
• Market – an economic system in which
economic decisions are made by individuals
who decide what to produce and what to buy
Economics Review
• How many basic types of economic
systems are there?
• 3
• Name the economic systems:
• Traditional, Command, Market
• Which system are most countries in the
world?
• Mixed – not a system, but a blending of
command and market.
Traditional
• Most economic decisions are based on custom
and habit.
• Found in rural areas where people depend on
their extended families
– Work is often subsistence farming, herding animals,
or working in simple crafts and trades.
– Little money ever changes hands in a traditional
society.
– Bartering is how people usually pay for goods and
services.
• No country today has a traditional economy –
but some areas of SW Asia still practice it
(Bedouin, for example)
CRCT Test Prep page 107
313. In a traditional economy, how are economic
decisions made?
A. custom and habit
B. government planners
C. consumers and the market
D. combination of consumers and government
planners
A. Custom and habit
Command
• More centralized economy – government
planning groups make most basic economic
decisions
–
–
–
–
Which goods & services should be produced
Prices for goods and wages paid to workers
What jobs workers do
How & where goods would be sold
• No individuals can start their own businesses
• Government owns the places where goods are
made
CRCT Test Prep page 107
314. In a command economy, how are economic
decisions made?
A. custom and habit
B. government planners
C. consumers and the market
D. combination of consumers and government
planners
D. combination of consumers and government
planners
Market
• Economic decisions are made by
individuals who decide what to produce
and what to buy
• Also called capitalism, free enterprise, and
laissez-faire (French – means “to allow
them to do as they please”)
• Many SW Asian countries use a market
system.
CRCT Test Prep page 108
316. In a market economy, how are economic
decisions made?
A. farmers
B. custom and habit
C. government planners
D. consumers and the market
D. Consumers and the market
CRCT Test Prep page 108
317. Who takes on the financial risk in starting a
new business in a market economy?
A. consumers
B. government planners
C. individual business people
D. combination of government planners and
individual investors
C. Individual business people
GPS and E.Q.
• GPS: SS7E5b.: Explain how most
countries have a mixed economy located
on a continuum between pure market and
pure command.
• E.Q. How do most countries have a mixed
economy located on a continuum between
pure market and pure command?
Mixed
• Blend of command and market economy
characteristics
• Most SW Asian countries have a mixed
economy.
Economic Systems
Pure
Command
Pure
Market
CRCT Test Prep page 108
318. Why are most modern economies referred to as
mixed?
A. Poverty is always highest in countries with market
economies.
B. Government planners do not know how to handle
economic problems.
C. Products made by traditional economies have no
markets in the modern world.
D. Most countries have aspects of all 3 economic types
at work in their economies.
D. Most countries have aspects of all 3 economic types at
work in their economies.
CRCT Test Prep page 109
319. Why do most countries today operate somewhere
between a market economy and a command economy?
A. Most consumers want government control of the
economy.
B. Government control makes a market economy more
profitable.
C. Government control of some aspects of the economy
has never been successful in the modern world.
D. Most economies have found they need a mix of free
market and some government control to be successful
and protect consumers.
D. Most economies have found they need a mix of free
market and some government control to be successful
and protect consumers.
GPS and E.Q.
• GPS: SS7E5c.: Compare and contrast the
economic systems in Israel, Saudi Arabia,
and Turkey.
• E.Q. How do the economic systems in
Israel, Saudi Arabia, and Turkey
compare?
Israel
• Small desert country along Mediterranean Sea
• Lacks farmland and natural resources, so…
• Economy is based on advanced technology
Israel
(1) What to produce?
A large portion of Israel’s GDP
comes from high tech
manufacturing, financial
services, and agriculture.
(2) How to produce?
Israel has a lot of
government ownership of
business, but is gradually
allowing individuals to own
companies.
(3) For whom to produce?
Israel’s private sector produces
goods and services for domestic
and international markets based
on the market price system.
Israel
67% U.S.
76%
Place on the continuum: Israel would fall in the
middle of the market side on the continuum.
Pure
Command
Pure
Market
Turkey
• Northwestern part of the Middle East
• Between Asia and Europe – has been a center of
trade for 1000s of years
• Has less economic freedom than Israel – government
controls telephone and TV industries
Turkey
(1) What to produce?
Turkey has an economy with many
large service, manufacturing, and
agricultural
sectors.
(2) How to
produce?
Since the late
1980s, Turkey has
gradually moved
from a
government
directed economy
to more private
enterprise.
(3) For whom to produce?
1/5 of Turkey’s production is
exported. The remainder is
consumed by domestic
consumers and
the government.
Turkey
63%
Place on the continuum: Turkey would fall to the left of Israel
on the market side of the continuum.
Pure
Command
Pure
Market
Saudi Arabia
• Large desert country
• Rich oil reserves allow
Saudis to buy most of the
goods they cannot
produce themselves.
Saudi Arabia
(1) What to
produce?
Saudi Arabia is the
world’s leading
producer of oil. The
Saudi government
continues to invest in
industrial production.
It is a leader in
petrochemicals,
mining, and refining.
(2) How to produce?
• Over 95% of the oil industry
in the country is operated by
the government (the king).
Most major industries are
operated by the government.
• 1/3 of Saudi Arabia’s workers
come from other countries.
• The government has used oil
profits to invest in technology
development and services for
the people.
3) For whom to produce?
• 1/3 of Saudi Arabia’s
GDP is based on
exports to other
countries (This is due
to the economy’s
reliance on the oil
sector).
Saudi
Arabia
61%
Place on the continuum: Saudi Arabia would fall
to the left of Turkey on the continuum.
Pure
Command
Pure
Market
Saudi
Arabia
Israel
61%
67%
Turkey
63%
Pure
Command
http://www.heritage.org/index/ranking
Pure
Market
CRCT Test Prep page 109
320. The economies of Israel, Saudi Arabia,
Turkey, and Iran could best be described
as
A. Mixed
B. Market
C. Command
D. Traditional
A. Mixed
CRCT Test Prep page 110
321. How have the Israelis made up for their lack
of natural resources?
A. They have put everyone to work and have no
unemployment.
B. They have relied primarily on farming to keep
their country strong.
C. They have developed strong technology
companies in their economy.
D. Israelis have refused to import oil, saving
huge amounts of money each year.
C. They have developed strong technology
companies in their economy.
CRCT Test Prep page 110
322. Which industry does the government of
Saudi Arabia heavily control?
A. oil
B. agriculture
C. technology
D. textile manufacturing
A. oil
CRCT Test Prep page 110
323. How has the Saudi king used the profits from
oil to help other areas in his kingdom?
A. Money is distributed directly to all Saudi
citizens.
B. The king has ended unemployment in Saudi
Arabia.
C. Oil profits have paid for modern technology
and services.
D. The king has let the Saudi people decide how
to invest oil profits.
C. Oil profits have paid for modern technology and
services.
Specialization and Trade
GPS: SS7E6a.: Explain how specialization encourages trade between
countries.
E.Q. : How does specialization encourage trade between countries?
Specialization
“Do what you do best; trade for the
rest!”
• Countries specialize in
producing the goods and
services they can make
most efficiently so they
can trade them for goods
made by others that
cannot be produced
locally.
Specialization
• In SW Asia, some
countries are very
rich in oil and
natural gas.
• They do not have
farmland; it is hard
to produce enough
food.
Specialization
Saudi Arabia
• Specializes in production
of oil and gas and sells
these products at great
profit on the world
market.
• They use the money to
buy food and technology
that will make their little
bit of farming more
efficient.
Israel
• Does not have oil wealth
• They have become
leaders in agricultural
technology – even though
(or because) they have a
limited supply of arable
land.
• They sell the technology
to earn money to
supplement the food they
produce.
CRCT Test Prep page 111
324. What is “economic specialization”?
A. directly swapping goods from one country to another
without having to use money
B. trying to avoid investing in industry and technology
because of the expense involved
C. producing all goods and services needed for a
country’s growth, so that trade with other countries is not
needed
D. producing goods a country can make most efficiently
so they can trade them for goods made by others that
cannot be produced locally.
D. producing goods a country can make most efficiently so
they can trade them for goods made by others that
cannot be produced locally.
CR T Test Prep page 111
325. Saudi Arabia specializes in the
production of
A. oil and gas.
B. oil and sugar.
C. olives and oranges.
D. beef and chicken.
A. Oil and gas
CR T Test Prep page 111
326. Israel specializes in
A. medical technologies.
B. industrial technologies.
C. scientific technologies.
D. agricultural technologies.
D. agricultural technologies.
Trade Barriers
GPS : SS7E6b.: Compare and contrast
different types of trade barriers such as
tariffs, quotas, and embargos.
E.Q.
• How do barriers limit trade?
Barriers to Trade
• A tariff is a tax placed on goods
that one nation imports from
another.
• Many nations use tariffs to protect
their industries from foreign
competition.
• Tariffs provide protection by acting
to raise the price of imported
goods.
• Thus, tariffs encourage domestic
firms to increase their production,
and consumers are forced to pay
higher prices for the protected
goods.
Import quotas
• Quotas set a limit on the
amount of certain goods
that can be imported into a
country.
• They tend to work better
than protective tariffs, which
do not always stop
consumers who are willing
to pay a higher price for an
imported good.
• An embargo is a
government order
stopping trade with
another country.
Embargo
• Sometimes a
government imposes an
embargo to express its
disapproval of actions
taken by another
government.
• The embargo is
intended to pressure
the offending
government to change
its actions.
The U.S. is considering a full
trade embargo against Iran –
because of Iran’s nuclear
program.
1973 OPEC Oil Embargo
• 1973 – Arab nations attacked Israel.
• The U.S. supplied Israel with weapons to
fight.
• In response, OPEC had an oil embargo
against the U.S. until 1974.
• The result was an oil crisis.
– Oil went from $3/barrel to $12/barrel (it’s $99
today!) Gas prices went from a quarter to a
dollar.
CRCT Test Prep page 112
327. What is a tariff?
A. a tax paid by the purchaser when goods are
sold
B. a tax placed on goods coming into one
country from another
C. a tax placed on goods made by local
craftsmen or manufacturers
D. a tax paid when goods are shipped from one
state to another in the U.S.
B. a tax placed on goods coming into one country
from another
CRCT Test Prep page 112
328. What is a quota?
A. a decision to prevent certain goods from
being imported
B. a tax placed on imported goods when they
enter the country
C. a tax placed on goods when they are
purchased in the marketplace
D. a limit to the number or amount of a foreignproduced good that is allowed into the country
D. a limit to the number or amount of a foreignproduced good that is allowed into the country
CRCT Test Prep page 112
329. What is an embargo?
A. a tax placed on goods coming into the country
from overseas
B. a limit to the number or amount of a foreignproduced good that is allowed into the country
C. a tax paid by the producer before he can sell
his goods in another country
D. a formal halt to trade with a particular country
for economic or political reasons
D. a formal halt to trade with a particular country
for economic or political reasons
OPEC
GPS: SS7E6c. Explain the primary
function of the Organization of
Petroleum Exporting Countries (OPEC)
E.Q.: What is the function of OPEC?
OPEC
• Created in 1960 by oil producing countries,
mostly in SW Asia
• They wanted to work together to regulate the
supply and price of oil exported to other
countries.
• Supply and Demand: When OPEC countries
produce more oil, the price drops. When they
produce less the price goes up.
CRCT Test Prep page 113
330. Why was OPEC created?
A. to regulate the supply and price of oil
B. to design new machinery to get oil out
of the ground
C. to help the Palestinians with their
problems with Israel
D. to keep countries that are not members
from producing any oil
A. to regulate the supply and price of oil
CRCT Test Prep page 113
Prices rise
Stop oil production
331. What happens to the price of oil when
OPEC countries decide to limit
production?
A. prices rise
B. price drop
C. prices stay the same
D. oil stops being sold
A. prices rise
CRCT Test Prep page 113
332. Where are most of the OPEC countries
located?
A. Africa
B. South America
C. North America
D. Southwest Asia
D. Southwest Asia
Currency Exchange
GPS: SS7E6d. Explain why international trade
requires a system for exchanging currencies
between nations.
E.Q. Why does international trade require a system
for exchanging currencies between nations?
Exchange Rates
• Most countries in SW
Asia have their own type
of currency.
• In order to pay for goods
they trade with each
other, they had to set up
a system for changing
from one type of currency
to another.
• This is called an
exchange rate.
• Without a system for
exchanging currencies, it
would be very difficult to
conduct international
trade.
CRCT Test Prep page 114
333. Why is it important for nations to have a system to
convert from one currency to another?
A. Converting to different currencies makes goods cost
less.
B. Banks are not able to handle different kinds of
currencies.
C. The dollar is the most valuable currency in the world
today.
D. This makes it possible to buy and sell goods between
nations with different types of currencies.
D. This makes it possible to buy and sell goods between
nations with different types of currencies.
Relationship of Capital to GDP
in
Israel, Saudi Arabia, and Iran
GDP and Capital
• GPS: SS7E7a. Explain the relationship between
investment in human capital and GDP.
• GPS: SS7E7b. Explain the relationship between
investment in capital and GDP.
• E.Q.: How does investment in human capital
affect GDP?
• E.Q.: How does investment in capital (physical)
affect GDP?
GDP
• GDP, or Gross Domestic Product, is
determined by taking the total value of all
goods and services produced by a country
in a single year.
• GDP per capita is the GDP divided by the
total population.
• You can tell how wealthy a country is by
looking at the GDP per capita.
Human Capital
• The knowledge, skills, and experience of
people that make it possible for workers to
earn a living producing goods and
services.
• Human capital can be increased by
investing in education, health care, and job
training.
•
3 prime components to improving a
nation's human capital:
1. importing skilled labor
2. educating the population
3. providing for its health
(Physical) Capital
• Capital goods (buildings, machines, and
technical equipment used in production)
are important to economic growth.
• Producing more goods for sale in a
quicker, more efficient way leads to
greater profit and economic growth.
Capital investment increases GDP
• Investing in capital increases a company’s
profit and makes for satisfied workers.
• When countries invest in capital, they have
higher GDPs.
Set up a Flow Chart Like This for
Israel, Saudi Arabia, and Iran
Physical Capital
GDP
Human Capital
Israel
Human Capital
• Israel spends 6.9% of GDP on education
• Literacy: 97.1%
• Years spent in school:15
• Invests in human capital so workers will be
able to work in industry and technology
Israel
Physical Capital:
• Has invested heavily in capital goods because
much of their economy depends on technology,
industry, and advanced communications
systems (not many natural resources).
• Has invested heavily in
agricultural technology.
• Has also heavily invested in defense industry.
Israel
• GDP: $31,400 (2011 est.)
Saudi Arabia
Human Capital
• Saudi Arabia spends 6.8% of GDP on education
• Literacy: 78.8%
• Years spent in school: 9
• Invests in human capital – it takes a well
educated, well-trained workforce to operate the
technology involved in the oil industry.
Saudi Arabia
Physical Capital
• Has invested heavily in capital goods,
especially technology related to oil
production, transportation, and
communication.
Saudi Arabia
• GDP: $24,500 (2011 est.)
Iran
Human Capital
• Iran spends 4.9% of GDP on education
• Literacy: 77%
• Years spent in school: 11.3
• Has invested in human capital - good
schools for jobs in advanced technology
Iran: Physical Capital
• Has made great investments in capital goods
related to oil production, technology, and
communication.
• Has also invested heavily in defense
industry.
• Has inefficiency and poor organization in the
parts of the economy under government
control
Iran
• GDP: $13,200 (2011 est.)
CRCT Test Prep page 115
334. What is human capital?
A. skills and education workers have
B. taxes collected from a country’s
workers
C. money paid to workers for producing
goods
D. The amount of goods sold in foreign
trade in a year
A. skills and education workers have
CRCT Test Prep page 116
335. Why have the Israelis made a big investment
in human capital?
A. Their main industry is the oil industry.
B. Investing in human capital takes very little
money.
C. They have to bring in workers from other
countries.
D. They need well-trained workers because their
economy depends on advanced technology.
D. They need well-trained workers because their
economy depends on advanced technology.
CRCT Test Prep page 116
336. Why would the Saudi oil industry need a large
investment in human capital?
A. The technology in the oil industry is very
complicated.
B. The Saudis have found it hard to make a
profit in the oil industry.
C. Most people working in the Saudi oil industry
have little or no real training.
D. They hope to have machines take over most
of the jobs now done by workers.
A. The technology in the oil industry is very
complicated.
CRCT Test Prep page 116
337. One of Iran’s biggest problems with
their state-run oil industry is
A. few remaining large oil deposits.
B. lack of a market for their product.
C. inefficiency and poor organization.
D. a labor force that does not want to
work.
C. inefficiency and poor organization.
CRCT Test Prep page 116
338. If a country does not invest in its human
capital, how can it affect the country’s GDP?
A. Investment in human capital has very little
effect on a country’s GDP.
B. Most workers want to keep their jobs and do
not care about GDP.
C. GDP is only affected if workers pay for the
investment out of their own pockets.
D. GDP may go down because poorly trained
workers will not be able to do their jobs as well.
D. GDP may go down because poorly trained
workers will not be able to do their jobs as well.
CRCT Test Prep page 117
339. What are capital goods?
A. the workers who make the goods and
services
B. the factories and machines used to make
goods
C. the money spent to train workers to use new
technology
D. the goods and services that are produced for
a country’s economy
B. the factories and machines used to make goods
CRCT Test Prep page 117
340. Israel has invested heavily in capital
goods in all of the following areas
EXCEPT
A. oil
B. defense
C. communication
D. farming and agriculture
A. oil
OIL
• GPS: SS7E7c. Explain the role of oil in
these countries’ economies.
• E.Q.: How does oil affect these countrie’s
economies?
Importance of Oil
• In SW Asia, one of the most important natural
resources is oil.
– Over ½ of the world’s known oil supplies are found in
SW Asia
• Oil and natural gas are fossil fuels –
nonrenewable resources.
• Most industrial nations depend heavily on a
steady supply of oil and natural gas.
• We import about ½ of the oil we use (about 18
million barrels PER DAY!)
• SW Asian countries,
therefore, already
have a market for
their oil.
• Many of them have
become very rich in
the last 50 years as
the world demand for
oil and gas have
increased.
• Saudi Arabia & Iran
are 2 of the world’s
largest oil producers.
• Israel has a highly
developed industrial
economy which needs oil
and gas to operate.
• World price of oil has
huge impact on Israel.
• Israel mines minerals like
phosphates and Dead
Sea salt to sell, but
depends on technology
for most of its GDP.
Israel
Produce and
sell technology
To buy oil
To run technology
Saudi Arabia: from Desert Kingdom
to Modern Nation in 100 years
• Has very few natural resources
• Has lots of oil
• Has allowed Saudi Arabia to become very
influential in the world economy and
OPEC
• Oil $$$ has allowed Saudi Arabia to
– Modernize agriculture, roads, schools,
airports, communications systems
– Improve ordinary citizens’ lives
Iran
• Has rich farmland
• Has access to water for irrigation and
farming
• Has varied economy – OIL is largest
contributor to GDP (85% of GDP comes
from oil!)
• 1/3 of people work in agriculture
• Political problems have slowed economy
• Member of OPEC
CRCT Test Prep page 118
341. Why are oil and gas such valuable natural
resources?
A. Large deposits of oil and gas are found in
most countries.
B. It is easy to replace oil and gas supplies after
they are used.
C. Industrial countries depend on oil and gas as
their energy supply.
D. Oil and gas are the only sources of energy
used around the world.
C. Industrial countries depend on oil and gas as
their energy supply.
CRCT Test Prep page 118
342. How much of the oil used by the U.S.
has to be imported every day?
A. 33%
B. 50%
C. 75%
D. nearly 100%
B. 50%
CRCT Test Prep page 118
343. How has the Saudi government used its national
wealth to change the country?
A. All Saudi citizens are given an equal share of the
national wealth.
B. The Saudi government has spent very little to improve
the lives of ordinary citizens.
C. A majority of the national wealth has been given to
religious organizations in the country.
D. The government has paid for improvements in
transportation, education, health care, and agriculture.
D. The government has paid for improvements in
transportation, education, health care, and agriculture.
CRCT Test Prep page 118
344. How do Iran and Saudi Arabia benefit from
belonging to OPEC?
A. OPEC keeps the price of oil high on the world
market.
B. Countries in OPEC are able to share water
resources with each other.
C. The organization sets up tariffs to protect SW
Asian manufacturing.
D. OPEC makes it possible for SW Asian
countries to buy oil at low prices.
D. OPEC makes it possible for SW Asian countries
to buy oil at low prices.
Entrepreneurs
GPS: SS7E7d. Describe the role of
entrepreneurship.
E.Q.: How does entrepreneurship affect
economic growth?
Entrepreneurs take risks to create new
businesses and products.
CRCT Test Prep page 119
345. What is an entrepreneur?
A. people who enjoy saving all their money
B. business people who try not to take risks with
their money
C. someone who is always successful in
whatever he attempts
D. someone who is willing to take a risk to begin
a new business
D. someone who is willing to take a risk to begin a
new business