CH4: The Economic Environments Facing Business

I. International Economic Analysis A universal assessment of economic environments is difficult because it is difficult to stipulate a definitive set of indicators to estimate the performance and potential of a country’s economy today’s set of perfect measures may prove imperfect tomorrow interdependencies complicate interpreting the relationship among elements of the economic environment

II. Economic Freedom Economic freedom – people have the right to work, produce, consume, save, and invest the way they prefer measured across business freedom, monetary freedom, fiscal freedom, investment freedom, freedom from corruption, property rights, trade freedom, government size, financial freedom, and labor freedom

II. Economic Freedom Economic Freedom by Region, with Population

III. Value of Economic Freedom Economic freedom affects Growth rates Productivity Income levels Inflation Employment Life expectancy Literacy Political openness Environmental sustainability

IV. Types of Economic Systems An economic system refers to the mechanism that deals with the production, distribution, and consumption of goods and services Types Market economy Command economy Mixed economy

IV. Types of Economic Systems Types of Economic Systems

IV-1. Market Economy In a market economy individuals rather than governments make most economic decisions Capitalism private ownership of capital Laissez-faire governmental noninterference in economic affairs

IV-2. Command Economy In a command economy the visible hand of the state supersedes the invisible hand of individuals Government owns and controls resources determines prices Communism

IV-3. Mixed Economy Most economies are mixed economies fall between market and command economies Socialism regulate economic activity with a focus on social equality and a fair distribution of wealth

V. State Capitalism: Detour or Destination? State capitalism refers to a system in which the government explicitly manipulates market outcomes for political purposes promote certain industries to encourage economic development develop national companies into global leaders foreign companies restricted from strategic industries

VI. Economic Development, Performance, and Potential Broad classes of countries include developing countries largest number of countries low per capita income emerging economies fast growing, relatively prosperous BRICs – Brazil, Russia, India, and China developed countries high per capita income and standard of living like the U.S., Japan, France, Australia

VI-1. Measures Gross national income (GNI) the broadest measure of economic activity for a country Gross national product (GDP) the total value of all final goods and services produced within a nation in a particular year Gross domestic product (GDP) the total market value of goods and services produced by workers and capital within a nation’s borders

VII. Features of an Economy Managers should also consider Inflation Unemployment Debt Income distribution Poverty Balance of payments