ECONOMIC CONCEPTS FOR AN INTERNATIONAL MARKETER Chapter 4

What you will learn….  Explain the relationship between international marketing and economics  Understand that economic choice is a result of unlimited needs and wants combined with limited resources  Discuss the importance of specialization, comparative advantage, and opportunity costs in world trade  Interpret a production possibilities curve  Define several economic indicators and understand how they can be used to evaluate the strength and stability of a nation’s economy

Why Study Economics?  Global marketing is all about economics!  Economics is the study of how societies make choices among unlimited wants and needs when the resources to satisfy them are limited.

Unlimited Wants and Needs  Human needs and wants are UNLIMITED!  Basic needs – food, shelter and clothing  Wants – goods and services people would like to have, but could do without

BUT I WAAAANNTT IT!!!!  There are no limits to what people may want.  When you satisfy a need or want, you then want something else.  What people need and want, and the choices they make to satisfy those needs and wants, is the heart of economics.

Limited Resources  You can’t have everything you want!  Resources are those things used to satisfy human needs and wants.  Land, labor, capital and entrepreneurship (factors of production)

Factors of Production (Resources)  Land – minerals, space, soil and productive capacity of a given area  Labor- mental and physical abilities available in a work force  Capital – buildings, equipment, factories capable of producing what is desired  Entrepreneurship – the person who organizes the business and assumes the risks of operation

SCARCITY AND CHOICE  Unlimited needs and wants combined with limited resources lead to scarcity  How much is wanted vs. how much is available  Choice is the act of selecting among alternatives  Economics is about making choices

WHY DO PEOPLE TRADE?  Each society must evaluate its resources and make decisions on how to use those that are limited.

SPEICIALIZATION  Specialization is the key to satisfying human needs and wants in a global trading environment.  Specialization means trading partners use their resources to produce the things they can best produce. Then they trade for things they cannot produce as well.

Comparative Advantage VS. Absolute Advantage  Absolute advantage means a country can produce a good or service more efficiently than any other country.  Comparative advantage is the principle that a country should specialize in producing the goods or services at which it is relatively most efficient.

The Law of Comparative Advantage  When each nation produces what it is best suited to produce, and trades for what it is less suited to produce, the total amount of world trade rises

Trade-Offs and Opportunity Cost  With every decision a nation makes, there is a trade-off.  Trade-offs are what a person, business or nation has to give up to get something else.  Opportunity cost is the value of the alternative that is not chosen when a decision is made about allocating available resources.

Production and Resources  Production possibilities curve – a graphic illustration of the combination of output that can be produced if all resources are used efficiently.

ECONOMIC INDICATORS  Economic indicators are measures that chart the progress of a nation’s economy.  When evaluating the economies of potential trading partners, it is helpful to analyze these economic indicators.

Gross National Product and Gross Domestic Product  GNP – The total market value of all final goods and services produced by a nation in one year  GDP – All production within a nation’s borders, regardless of which nation owns the companies.

PER CAPITA GDP  The amount of product produced within a nation’s borders, per person in a year is the per capita GDP.

BUSINESS CYCLES  A business cycle is the pattern of up-and- down motion in the total economic output of a nation.  Business peak  Economic contraction  Business trough  Economic expansion

Business Peak  High levels of economic activity  High employment  Healthy sales of goods and services  Good Times!!  The late 1920’s & 1990’s!

Economic Contraction and a Business Trough  Contraction leads to a business trough  Business slow down  Low levels of economic activity  High unemployment  Slow sales of goods and services  Recession  Depression

Economic Expansion  Leads out of the trough to the peak.  Cycle repeats itself.

Recession vs. Depression  Recession – GNP or GDP declines for six months or more.  Depression – A sharp decline in economic activity for a long time (more than 6 months)

World Export/Import Growth  There has been rapid growth in exports and imports in the last 40 years.  Countries are more interdependent.  Economic slowdown in one country causes economic slowdowns in other countries.

Composite Indexes of Economic Indicators  Economists must look at a number of figures to measure the economic health of a nation.  Composite indexes of economic indictors are made up of several different measures of a nation’s economy.  Leading indicators – indicate the future of the economy –Avg. workweek of production workers –Initial claims for state unemployment compensation –New mfg. Orders –Building permits for new private-housing –Common stock prices