Unit 2EconomicsUnit 2Economics

Chapter 3 Political and Economic Analysis

Chapter 4 Global Analysis

What Is an Economy? Chapter 3 Political and Economic Analysis

Chapter 3 Political and Economic Analysis

• Section 3.1 What Is an Economy?

• Section 3.2 Understanding the Economy

• Section 3.1 What Is an Economy?

• Section 3.2 Understanding the Economy

What Is an Economy?

Objectives• Define the concept of an economy• List the factors of production• Explain the concept of scarcity• Discuss how the three basic economic questions

are answered by these economies:

Traditional

Mixed

Command

Market• Cite examples of various economic systems

Key Terms

economy

resources

factors of production

infrastructure

scarcity

traditional economy

market economy

command economy

Marketing Essentials Chapter 3, Section 3.1

What Is an Economy?

Study Organizer

Create a diagram like this one to record information about market economies and command economies.

What Is an Economy?

An economy is the organized way a nation provides for the needs and wants of its people

A country chooses how to use its resources to produce and distribute goods and services

Therefore, a country’s resources determine economic activities such as:

• Manufacturing

• Buying

• Selling

• Transporting

• Investing

Marketing Essentials Chapter 3, Section 3.1

Resources

Resources are all the things used in producing goods and services.

Four Categories of Resources:

• Land (Natural Resources)• Labor (Human Resources)• Capital• Entrepreneurship

Which are tangible? Which are intangible?

Land LaborCapital Entrepreneurship

Land includes all the “natural” resources in the earth or found in the seas, for example:

What are some examples of Natural resources?

•Coal•Crude oil•Trees, plants and soil•Water and all living things in the lake•Climate and country’s geography used to attract tourists

1. Land Resources

Marketing Essentials Chapter 3, Section 3.1

These natural resources are used as:

• Raw materials for the creation of goods and services

• Attractions for tourism

Marketing Essentials Chapter 3, Section 3.1

Spain’s land—including its coasts, historical cities, and national parks—is an economic resource that makes the country an attractive tourist destination.

2. Labor Resources

Labor refers to all the people who work.

What are some examples of Labor resources?

• Full- and part-time workers• Managers• Professionals in the public and private sectors• Businesses compete to have the best

employeesEconomies with well-trained labor have an advantage over other nations in attracting businesses

3. Capitol Resources

Capital includes money to start and operate a business and goods used in the production process:

What are some examples of Capital Resources?

• Cash/money• Factories and Office buildings• Computers and tools • Raw natural materials that have been

processed into usable form (ex: lumber or steel that you own)

Capital Resources

Capital also includes infrastructure , which is the physical development of a country

What are some examples of infrastructure?

• Roads• Ports• Sanitation facilities• Utilities - especially

Telecommunications

Marketing Essentials Chapter 3, Section 3.1

Capital Resources

Without capital, businesses would not have the funds or resources to develop, advertise, or transport goods

4. Entrepreneurship Resources

Entrepreneurship refers to the skills of people who are willing to invest their time and money to run a business.

Entrepreneurs:

• Organize factors of production to create goods and services

• Employers of a population

Marketing Essentials Chapter 3, Section 3.1

United States Resources

• What are some examples of natural Resources in the US?

• Student Contributions:

United States Resources

• Educated Labor force• Great deal of capital• Abundance of entrepreneurs• Large amount of natural resources:

– coal, copper, lead, molybdenum, phosphates, uranium, bauxite, gold, iron, mercury, nickel, potash, silver, tungsten, zinc, petroleum, natural gas, timber; note: the US has the world's largest coal reserves with 491 billion short tons accounting for 27% of the world's total

• Does every country have the same as we do?

Scarcity

• Different economies have different amounts of resources• May have resources but not the capital• May have capital but not the resources• Don’t have the labor force or education• Many can’t meet the needs and wants of all its citizens

(poverty a result)

• Scarcity = the difference between a country’s unlimited wants and limited resources .

• Scarcity forces nations to make economic choices• Must decide how to use their limited resources• How they use their resources defines their economic system

How Does an Economy Work?

Nations answer three basic questions when deciding how to use their limited resources:

• What goods and services should be produced?• How should the goods and services be produced?• For whom should the goods and services be produced?

Like asking What, How, and Whom

all questions are based on the resources they have access to

How Does an Economy Work?

There are three broad categories into which economic systems are classified:

• Traditional

• Market

• Command

No economy is purely one type. It is always a combination.

Marketing Essentials Chapter 3, Section 3.1

Traditional Economies

In a traditional economy , traditions and rituals answer the basic questions of what, how, and for whom.

• What: If people belong to a farming community, they farm for generations. There is little choice as to what to produce.

• How: Again, this is bound by traditions. The practices of a family’s ancestors carry on.

• For whom: Tradition regulates who buys and sells and where and how the exchange takes place.

Market Economies

In a pure market economy , there is no government involvement in economic decisions. The market is free to answer:

• What: Consumers decide what should be produced in the market through which products they buy the most

• How: Businesses decide how to produce goods and services by being competitive and out-selling their competitors

• For whom: The people who have more money are able to buy goods and services.

• To make money, people are motivated to work and invest their income

Command Economies

A command economy system in which a country’s government makes economic decisions and decides:

• What: One person (often a dictator) or a group of government officials decides what products are needed.

• How: The government owns all means of production, so it makes the decisions

• Controls all employment opportunities and benefits• Extreme cases: tells people where they will work and how much

they will get paid

• For whom: Wealth is regulated by the government to equalize everyone. Everything from housing to education is subsidized by the government.

Mixed Economies

• No economy is purely traditional, market, or command• All economies are considered somewhat mixed• What do you think the US Economy is?• Mixed economy leaning toward market economy

• Business laws and regulations, labor laws, OSHA standards

Marketing Essentials Chapter 3, Section 3.1

Economies

• Economic systems placed on a continuum to compare levels of government involvement• Economic freedom to the right encourages competition • Systems to the left are more regulated by their

governments• Where would a pure Market Economy be placed on the

continuum below? • Where would a pure Command Economy be placed?• What is in between?

Political Philosophies

A meaningful classification depends on how much a government interferes with the free market

Three political philosophies that shaped economies:

1. Capitalism2. Socialism3. Communism

Capitalism

• Capitalism - economic philosophy characterized by marketplace competition and private ownership of business

• The political system most frequently associated with capitalism is democracy

• Capitalist countries include: • The United States• Japan Where is capitalism on the continuum below?

Marketing Essentials Chapter 3, Section 3.1

Communism

• Communism = economic philosophy in which the government controls the factors of production

• No financial incentive for people to increase their productivity as the government regulates and assigns:• Employment• Medical care• Education• Housing• Food

Where is Communism on the Continuum?

Communism

Examples of modern communist countries are:• Cuba• North Korea• China

Marketing Essentials Chapter 3, Section 3.1

Socialism

Socialism: supports private ownership yet controls the means of production and distribution– •Market is not completely controlled by the government•Increased amount of government involvement

• More social services: education and medical care is free or low cost

• Pensions and Elderly care•The state will control noncompetitive companies like:

• Telecommunications• Natural resources (gas, water, and power)• Transportation• Banking

Socialism

Examples of Modern countries with socialism:• Canada• Germany• Sweden

Where is Socialism on the Continuum?

Today, many socialist countries are selling some of their state-run businesses to help balance the increasing costs of:• National health care• Unemployment• Retirement programs

This transfer of control is called privatization

Socialism

Marketing Essentials Chapter 3, Section 3.1

Developing economies are mostly poor countries with little industrialization that are improving their infrastructure to become more prosperous. These countries need to improve:• Education• Technology• Exports• Means of production (roads, ports, utilities)

Marketing Essentials Chapter 3, Section 3.1

What Is an Economy?Differences and Similarities Among Market and

Command Economies

Sec

tio

n 3

.1

CHAPTER 1 REVIEWSECTION 3.1 REVIEW

- click twice to continue -

SECTION 3.1 REVIEW