Economic Factors Related to International Business

Economic Systems We know that there are three types of economic systems: -Market economies, -Centrally-planned economies, -Mixed economies Let’s look a little more at each one.

Market Economies Concept of private property. People own the “means of production.” People free to make a profit. Competition is encouraged. Government has little involvement. Foreign investment is encouraged. Self-sufficiency is not an economic goal.

Supply and Demand Law of Supply: As the price of a product increases, producers will be willing to produce more of that product. Law of Demand: As the price of a product increases, consumers will demand less of that product. Businesses need to find the “equilibrium.”

Effect of Supply on Prices

Centrally-Planned Economies Government regulates all aspects of goods and services. This includes: -Quantity -Distribution -Price No real Private Property. Society first, individual second. Profit is not a motive.

Mixed Economies Mixture of both systems. There are most of the features of the market economy, but there is also government intervention. This is mainly in important industries like

Canadian Broadcasting Corporation Canadian Space Agency Federal Bridge Corporation Northern Pipeline Agency Canada

Very often, these get privatized. Governments want to cut costs OR raise money quickly. As governments mature, they tend to shift closer to market economies.

Business Cycles The world economy operates on predictable cycles, measured by industrial growth:

Depression Economy shrinks Price deflation Fewer jobs/more job losses Government assistance BUT Less government revenue (why?)

Recovery Beginnings of improvement. More goods/services (slow) More hiring More spending Prices rise

Prosperity A lot of production Employment, wages, profits increase. Strong investment Materials and labour may be scarce

Recession Economy STARTS to slow. (Grows less slowly) Increases in employment and business failures “Luxury” goods/services tend to fall first. Occurs when economic output shrinks for at least six consecutive months (two quarters).

Business Cycles

World Economic Freedom Index Measures the following: -Size of government -Structure of the economy and use of markets -Monetary policy and price stability -Freedom to use alternative currencies -Legal structure/property rights -International exchange (freedom to trade) -Freedom of exchange in capital and financial markets This year's ranking

Global Entrepeneurship The more flexible the labour force and receptive the government, the most entrepeneurs a country will have. Attractive employment environments means fewer start-ups. The more regulations a government has, the fewer start-ups.

Around-the-clock World Markets There are major stock exchanges in: New York, London, Tokyo There are several others: -Shanghai -Hong Kong -Frankfurt -Mumbai -…and more.

Common Currency Currently, the only example of this is the Euro. Others have been proposed, like the “Amero.” Problems are that countries lose the right to control their own policy. Benefits are that tourists and businesses do not have to exchange the money.

Some currencies get adopted as “second currencies Some currencies get adopted as “second currencies.” (Canada and the USD)

Work READ: 9.4 Managing International Financial Risks p.293-296 Start working on Chapter 9 Questions p.300-301 (Not due until after the holiday) TOMORROW: Read/study, work on questions and IBP WEDNESDAY: UNIT 3 TEST THURSDAY: MOVIE…GET OUT OF HERE