Economics and the World Economy GLOBAL MARKETING Economics and the World Economy

Understanding the World Economy Productivity is OUTPUT per worker HOUR Gross National Product (GNP) – Total dollar value of goods and services produced by a nation, including goods/services produced ABROAD by U.S. citizens and companies Gross Domestic Product (GDP) – is the output of goods and services produced by labor and property located within a country Difference between GNP and GDP –GNP counts the country RESPONSIBLE for production. In GDP, counts the country WHERE the production takes place

Measuring Inflation Inflation refers to RISING prices (low – 1% - 5 %; high – 10% or higher; money does not have the same value) Consumer Price Index (CPI) – measures the change in price over time of 400 specific household goods and services (milk, cars, medical care, etc.) Producer Price Index (PPI) – measures wholesale price levels in the economy (business to business costs- steel, etc.)

Why Trade Internationally? Countries trade with others to get RESOURCES that they NEED and do not have 4 Benefits of International Trade: Increased competition Lower prices More variety Exchange of ideas and technological advancements

Why Trade Internationally? Interdependence of Nations: Most countries do not produce or manufacture all the goods and services they NEED Countries get some of their goods and services from OTHER nations because each country possesses UNIQUE resources and capabilities “The global marketplace is here to stay”

International Trade The sale of products and services to people in other countries – international trade CHINA is the world’s TOP importer and exporter of goods China’s total trading of goods in 2015 $2.165,205 trillion America’s total trading of goods in 2015 $1,373,192 trillion International trade INCREASES each year

Imports Products or services PURCHASED from ANOTHER country - IMPORTS U.S. IMPORTS include: electronics, machines, autos, oil, pharmaceutical, medical equipment Many imports from Canada, China, Mexico and Japan

Exports Products that are produced in YOUR country and other countries purchase them - EXPORTS Products are SOLD in another country The U.S. EXPORTS - machines, electronic equipment, aircraft/spacecraft, autos, oil

Exporter

Balance of Trade Difference between what a country imports and exports – BALANCE OF TRADE If NEGATIVE, the country is spending MORE on IMPORTS than they are making on exports If it is POSITIVE, the country is spending less on imports and they are making MORE on EXPORTA

Balance of Trade The U.S. exports LESS amount and imports MORE; therefore, we have a balance of trade NEGATIVE

Government Control of International Trade Not everyone benefits from Free Trade Because there are both winners and losers of free trade, sometimes governments decide to IMPOSE trade BARRIERS or RESTRICTIONS of free trade

Government Control of International Trade (continued) TARIFF, also called a DUTY, a TAX on imports QUOTA either: Limits the QUANTITY allowed to be imported Limits the DOLLAR VALUE of a product imported An EMBARGO is a TOTAL BAN on specific goods coming into and out of a country

3 Types of International Markets WHITE MARKET: The import and sales of goods by authorized dealers; receive customer support from the legitimate importer GRAY MARKET: The import and sale of goods by unauthorized dealers; such activity is unofficial but NOT illegal Goods have NO factory warranty, and receive NO customer support from the legitimate importer BLACK MARKET: The import and sale of goods that are strictly CONTROLLED or ILLEGAL Motives are to trade contraband, avoid taxes and regulations, or skirt price controls or quotas

Well-Known Trade Agreements/Alliances European Union (EU) World Trade Organization (WTO) North American Free Trade Agreement (NAFTA)

The European Union (EU) Europe’s trading bloc Free trade among its 28 member nations Created SINGLE European currency (euro) and CENTRAL Bank Replaced national currencies (French/franc and German/mark)

The World Trade Organization (WTO) Global coalition of nations that make rules governing INTERNATIONAL trade Police agreements and resolve disputes among nations 154 member nations

North American Free Trade Agreement (NAFTA) Free trade agreement between 3 members: U.S., Canada, and Mexico Principal benefit is INCREASED trade with Mexico NAFTA’s main goal was to REMOVE all trade BARRIERS and investment restrictions among the 3 countries