Political and Economic Analysis
Chapter 3
1
Analysis

Page 48-49: Read through the ad
regarding evian
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
Read “Analyze the Ad” and be prepared to talk
about the section of Market Talk
Page 50-51

Read “Guide to the Photo” and be prepared to
talk about the “Quick Think”
2
Economy
An economy is how a nation makes
economic choices that involve how the
nation will use its resources to produce
and distribute goods and services (G & S)
to meet the needs of its population
 A country’s resources determine economic
activities such as manufacturing, buying
selling, transporting, and investing

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How has this changed over time?
What are the leading factors?
3
Resources

All things used in
producing G’s & S’s

Factors of production
when referring to
resources
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Land
Labor
Capital
Entrepreneurship
4
Factors of Production
Land

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Labor
Everything contained in
the earth or in the seas
AKA Raw Materials

Used for making G’s & S’s
that are marketed to
customers
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Crude oil, ore, gas
Lake water and all living
things within it
Trees, plants and soil
Best place for Skiing?
Most produced oil?
Best place for cocoa bean?

All the people who work

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Full and part-time workers
Managers
Professionals in the private
and public sector
Companies invest in their
employees

Creates an advantage over
other countries
5
Factors of Production
Capital

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Money to start and operate
a business
Also includes goods used
in the production process

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Machinery, tools, computers
Buildings
Raw materials that have
been transformed into useful
form (ie. Steel)
Includes infrastructure

Physical development of a
country: roads, ports,
sanitation, facilities, utilities
Entrepreneurship

The skills of people who
are willing to invest their
time and money to run a
business


Organize factors of
production to create the G’s
& S’s that are part of an
economy
The employers of a
population
6
Scarcity

The difference between what consumers
want and need and what the available
resources are
Forces nations to make economic choices
 US has an abundance of labor, capital, natural
resources and entrepreneurs

 However,
several individuals live in poverty, thus
not all needs/wants are being met for ALL citizens
 Underdeveloped nations may not have as many
resources (ex: natural resources, minimal capital)
7
Economic Systems
Countries with different economic systems
have different approaches when making
decisions about the G’s & S’s it provides
 The way nations answer three basic
questions defines their economic system:

1.
2.
3.
Which G’s & S’s should be produced?
How should the G’s & S’s be produced?
For whom should the G’s & S’s be
produced?
8
Economies
Market

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No government
Involvement in economic
decisions
Individuals and
companies own the
means of production and
businesses compete for
consumers


Full government
involvement in economic
decisions
Government controls all
factors of production
What?

Consumers- through
purchases

Businesses-most efficient
way
For Whom?

Consumers – Monetary
exchange

Dictator or gov. group
decides was is needed
based on what they believe
is important
How?

How?
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What?
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Command
Government controls all
employment opportunities,
benefits, etc.
Mixed


Individuals, companies,
and government
involvement are
present
US and Canada are
considered mixed
(amongst almost all)


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Government run
entities
Laws and
Regulations
Social Programs
For Whom?

Government decides who
will receive what is
produced (generally for
equality)
9
Political Philosophies
Capitalism
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Characterized by
marketplace competition
and private ownership of
businesses
Great concern over its
people and those who
cannot care for
themselves
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Social Services
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However does not match
that of a socialist country
Most frequently associated
with capitalism is
democracy
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Communism
A social, political, and
economic philosophy in
which the government,
usually authoritarian,
controls the factors of
production
No private ownership of
property or capital
Theory
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
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Originally referred to
system on its way to
the communist ideal to
a classless society
Most countries are
defined as socialist
have democratic
political institutions


All are assigned jobs
Power should be in the
hands of the people
US and Japan are
classified as capitalist
G’s & S’s are available to all,
therefore the society is
classless
Socialism
In theory: no unemployment,
all are paid, housed, fed, and
are provided medical
Cuba & North Korea

Losely, China, Loas, Vietnam

Increased amount of
gov involvement than
that of capitalism
More social services
(ex. Free or low cost
medical, pensions,
elderly care
Government run key
industries
10

Canada, German,
Sweden
Economies in Transition
Making the change from command to market economies
State owned industries have moved toward privatization
Moving Toward Privatization

Many socialist countries are
selling some of their state-run
businesses to help balance
their budgets
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Sold its national phone company,
national steel company, national
sugar company, British Airways.
Mostly poor countries with little
industrialization
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Higher costs: National health care,
unemployment and retirement
Great Britain
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Developing Economies

Developing infrastructure and
become more prosperous
Education and foreign investment
are keys to success
Chad (Central Africa)

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Abundance for export: cotton,
cattle, and gum arabic
An investment into their oil fields
for export
11
Review
1.
Explain how the infrastructure of a country
is related to the factors of production
2.
What four broad categories do
economists use to classify all economic
systems?
3.
In which economic system does the
government let the market answer the
three basic economic questions?
12
Review
4.
In a country with a population of
300,000,000, how many people would be
considered below poverty line if the
percentage in that category was 12.7%?
13
Economy and Marketing

A healthy economy
has 3 goals
Increase productivity
 Decrease
unemployment
 Maintain stable prices

 Keeping
track of these
helps aid in decision
making
14
Economic Measurements
Accurate information about an economy is
essential to the “who” process
 Key economic measurements to determine
strength

Labor productivity
 Gross Domestic Product
 Gross National Product
 Standard of Living
 Inflation Rate
 Unemployment Rate

15
Labor Productivity

Output per worker hour measured over a
period of time

Increase productivity in what ways?
 Invest
in new equipment
 Employee work efficiency
 Training
 Financial incentives
 Worker specialization
16
Gross Domestic Product (GDP)

Output of G’s & S’s produced by labor and
property located within the country

US uses this as its primary measurement

Annual reporting: Fiscal Year October – September
17
GDP Continued…
18
GDP Continued…
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Made up of the sum of:
Private Investment (I)
 Government spending (G)
 Personal/Consumer Spending (C)
 Net exports = Exports – Imports (X-M)

GDP = C + I + G + (X-M)
If net exports are negative, it will have a
negative impact on the GDP
19
Gross National Product (GNP)

Total dollar value of G’s & S’s produced by
a nation

Not “where” it takes place but who is
responsible for it
 Ford

– Plant in England
US used GNP as its primary measurement
before 1991
20
Standard of Living

A measurement of the amount of quality of
G’s & S’s that a nation’s people have
Quality of life
 GDP / population = per capita GDP
or
 GNP / population = per capita GNP

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Correlation between industrialized nations and
high standards of living
21
Inflation Rate

Inflation
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Rising prices
Stable economy =
1% to 5% (low)
Devastating
economy = 10% +
1960’s – 1980’s
Government raises
interest rates to
discourage
borrowing
Income vs Inflation
22
Inflation Rate Continued…
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2 Measures of Inflation

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Consumer Price Index (CPI)
Producer Price Index (PPI)
CPI
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Measures the change in
price over a period of
time of retail G’s & S’
used by the average
urban household
AKA Cost of living index
Food, housing, utilities,
transportation, medical
care

PPI
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Measures wholesale price
levels in the economy
Considered the
trendsetter as prices get
passed along to
consumers
Decrease in PPI =
23
decrease in CPI
24
Business Cycle
25
Business Cycle
26
Business Cycle
27
Business Cycle
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Business Cycle
Business Cycle Continued…
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