Chapter 3 – Political and Economic Analysis
UNIT 2 - ECONOMICS
3.1 WHAT IS AN ECONOMY?
The organized way a nation provides for the
needs and wants of its people.
 A nation chooses how to use its resources to
provide and distribute good and services
 A country’s resources determine economic
activities such as manufacturing, buying,
selling, transporting, and investing.

RESOURCES

Resources
 All
the things used in producing goods and services
Economists use the term Factors of Production
when they talk about resources
 The factors of production comprise 4
categories:

 Land,
Labor, Capital, and Entrepreneurship
LAND

Land includes everything contained in the earth
or found in the seas.
 Ex.

Coal and Crude Oil are natural resources
Natural resources are used as raw material for
making goods and creating services that are
marketed to customers.
 Climate
and geography can also be an example
LABOR

Labor refers to all the people who work.
 It
includes:
 Full/part
time
 Managers
 Professionals in both private and public sectors

Economies with well trained, well educated
labor have an advantage over other nations in
attracting business
CAPITAL
Includes money to start and operate a
business.
 Also includes the goods in the production
process

INFRASTRUCTURE

Capital includes infrastructure
 Which
is the physical development of a country
 Includes
roads, ports, sanitation, facilities, and utilities,
especially telecommunications
ENTREPRENEURSHIP
Refers to the skills of people who are willing to
invest their time and money to run a business
 They organize factors of production to create
the goods and services that are part of an
economy

ECONOMICS AND THE SHOPPING MALL

The local shopping mall is a good place to
observe economic principals.
 Labor
is represented by salespeople
 Capital is the money that was invested in
manufacturing products and selling them

What are examples of the other 2 factors of
production (land and entrepreneurship)?
SCARCITY

The difference between wants and needs and
available resources
HOW DOES AN ECONOMY WORK?

Nations must answer three basic 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?

Dubai Example
 Location
 60
Minutes Video
 Pictures
TRADITIONAL ECONOMIES
Traditions and rituals answer the basic
questions of what, how, and for whom.
 Answers are also based on:

 Cultural
 Religious
practices
 ideals (passed from one generation to the next)
MARKET ECONOMIES
There is no government involvement in
economic decisions
 The government lets the market answer the
three basic economic questions

 What
 How
 For
Whom
COMMAND ECONOMY
A country’s government makes economic
decisions and decides what, when, and how
much will be produced and distributed.
 The government controls the factors of
productions and makes all decisions about
their use.

CAPITALISM
Marketplace competition and private ownership
of business
 Government is concerned about

 People
 Cares

for those that cannot care for themselves
United States and Japan are examples
COMMUNISM
Government controls the factors of production
 No private ownership of property or capital
 The theory

 Goods
owned in common are available to all as
needed
Very few left
 Cuba, North Korea, and China are examples

SOCIALISM
Originally referred to a system that was on its
way to turning communist.
 The main goal is to meet basic needs for all
and to provide employment for many
 Canada, Germany, and Sweden

3.2 UNDERSTANDING THE ECONOMY

The Economy and Marketing
 If
you are a marketer and you want to perform a
useful SWOT analysis you need to consider the
economic factors that will influence your marketing
plan.
WHEN IS AN ECONOMY SUCCESSFUL?

A healthy economy has three goals:
 Increase
productivity
 Decrease unemployment
 Maintain stable prices
All nations analyze their economies to keep
track of how well they are doing
 How is the US economy now?

PRODUCERS AND CONSUMERS
A nation's economy is the production and
consumption of goods (food, clothes, cars) and
services (repairs, lawn-mowing, haircuts) in that
nation
 Anybody producing or consuming things in a
country plays some role in the economy.
 Production and consumption are intertwined.

SUPPLY AND DEMAND
The ultimate goal of producers is to make
money
 Consumers may want to satisfy their wants and
needs by buying products
 Producers are the ones who actually set prices,
but they do so based on the behavior of
consumers.

SUPPLY AND DEMAND CONT.
If nobody buys a product at a particular price,
the producer knows the price is too high.
 If some consumers buy it, but not enough to
buy everything produced, producers must
either decrease the price or decrease the
supply.

SUPPLY AND DEMAND CONT.
The willingness of consumers to pay for
products is known as demand.
 Even if there is constant high demand for a
product (toilet paper, for example), individual
producers need to keep the price down or
consumers will just buy it from a competitor.

BUSINESS CYCLE
The recurring changes in economic activity
 Expansion

 When
the economy is flourishing, sometimes
referred to as a period of prosperity

Recession
A
period of economic slowdown that lasts for at 6
months

Depression
A
period of prolonged recession
RECESSION

A recession is a prolonged period of time when a
nation's economy is slowing down, or contracting. Such
a slow-down is characterized by a number of different
trends, including:






People buying less stuff
Decrease in factory production
Growing unemployment
Slump in personal income
An unhealthy stock market
By the conventional definition, this slow-down has to
continue for at least six months to be considered a
recession.
ASSIGNMENT

Page 69
 #21-25

Page 70
 #29-30
THE GREAT DEPRESSION

Video - American History: America's Economy:
Sorrow and Hope
 Questions:
 What
were some causes of the great depression?
 What happened to the residents of the dust bowl?