11 the economic and international trade ib

DEPARTMENT OF BUSINESS ADMINISTRATION
INSTRUCTOR : JIGJID.SHDEPARTMENT OF BUSINESS
ADMINISTRATION

INSTRUCTOR : JIGJID.SH
A nation’s economic system greatly
affects its trade relationships.

To identify different types of economic systems
To explain how natural, human, and capital
resources affect a nation’s ability to trade
To explain the stages of economic development
and their effects on trade
To differentiate between an absolute and a
comparative advantage

You must understand a nation’s
economic system in order to
effectively conduct business
there.

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

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.

Types of Economic
Systems
Types of
Economic
Systems
Market
Economies
Command
Economies
Mixed
Economies

Market Economies
The United States
has a market
economy.
market economy
an economic system in
which economic
decisions are made in
the marketplace
The ideas of
capitalism, or the
free enterprise
system, are
associated with a
market economy.

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

Market Economies
The other force
that drives
purchases is
demand.
demand
the amount or quantity
of goods and services
that consumers are
willing to buy at
various prices
The meeting place
between supply and
demand is the
equilibrium price.

Market Economies

Market Economies
 Profit is the driving force of the
market economy.
 There are different forms of profit:
 Personal
 Company
 Governmental

Market Economies
Two other forces drive market economies :
Private property rights
Relatively free and competitive
marketplaces

Market Economies
In any market, there are some goods
that require governmental regulation,
such as dangerous chemicals.

Command Economies
A command economy
is also known as
a planned
economy.
command economy
which a central
authority makes all key
economic decisionsThe government, or
a national leader,
decides what will be
produced, how, and
for whom.

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.

Mixed Economies
Most countries
have a mixed
economy.
mixed economy
which the marketplace
determines some
economic decisions,
and the government
makes some decisions
Some argue that
socialism is a
mixed economy.

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.

Economic Resources
Economic
Growth
Natural
Resources
Human
Resources
Capital
Resources

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.

Natural Resources
Countries with few natural
resources must import key
resources, which makes everyday
goods more expensive.

Natural ResourcesTwo 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

Human Resources
Human resources are:
 Workers
 Managers
 Contractors
 Other employees
The term human resources
is distinct from the term
population.

Human Resources
Skilled Labor
Unskilled Labor
Physical Labor
Mental Labor
There is a strong connection between a country’s literacy
level and the number of skilled workers in a population.
Unskilled labor refers to laborers who have less education
and fewer skills that require training.
Jobs that require physical labor require unskilled and
semi-skilled workers to perform tasks.
Mental labor jobs require special knowledge, negotiation
skills, and creativity. Wages in these jobs are often higher.

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.

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.

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.

Economic Decisions
Factors
Affecting
Economic
Decisions
Scarcity
Opportunity
Costs

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.

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.

Economic Conditions
Economists look at several factors to describe the
economic well-being of a country.
Gross Domestic Product
Cost of Living
Inflation Rate
Interest Rate Levels
Levels of unemployment
Purchasing Power Parity
Balance of Trade
Level of Foreign Debt

The total value of goods and
services produced in a country each
year is known as the country’s gross
domestic product (GDP).

To calculate the GDP, economists add
the total value of goods and services
sold:
Increased productivity will
cause the GDP to rise.
To consumers
By businesses
From the government
To other countries

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.

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.

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.

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.

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.

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.

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.

Economic
Cycles
Recession
Rising
Peak
Decline
Unemployment
is very high
Companies begin
hiring and
economic activity
increases
High employment, strong growth in
GDP, positive consumer environment
Decline
toward
another
recession

Stages of Economic
Development
Four Stages of Economic Development
Underdeveloped
Developing
Industrialized
Post-Industrialized
High unemployment, few natural and human resources, high
poverty level, dependent on other nations
Small middle class, technological dualism, regional dualism,
low savings rates, poor banking facilities
Trade with foreign countries, manufacture of physical
goods dominant, manageable unemployment
Value of total sales of services is greater than
the value of physical goods produced

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.

11 the economic and international trade ib

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