CHAPTER IV ECONOMIC SYSTEMS AND DEVELOPMENT INTERNATIONAL BUSINESS CHAPTER IV ECONOMIC SYSTEMS AND DEVELOPMENT

Learning Objectives Describe what is meant by a centrally planned economy and explain why its use is declining. Identify the main characteristics of a mixed economy and explain the emphasis on privatization. Explain how a market economy functions and identify its distinguishing features. Describe the different ways to measure a nation’s level of development. Discuss the process of economic transaction and identify the remaining obstacle for business.

ECONOMIC SYSTEMS Centrally Planned Economy Mixed Economy Market Economy

ECONOMIC SYSTEMS Economic System Structure and processes that a country uses to allocate its resources and conducts its commercial activities.

CENTRALLY PLANNED ECONONY ECONOMIC SYSTEMS MIXED ECONOMY CENTRALLY PLANNED ECONONY ECONOMIC SYSTEM MARKET ECONOMY

Centrally Planned Economy Economic system in which a nation’s land, factories, and other economic resources are owed by the government, which plans nearly all economic activity

Centrally Planned Economy Origins of the Centrally Planned Economy Decline of Central Planning Failure to Create Economic Value Failure to Achieve Rapid Growth Failure to Satisfy Consumer needs Focus on China

Mixed Economy Mixed Economy Economic system in which land , factories and other economic resources are rather equally split between private and government ownership Origins of the Mixed Economy Decline of Mixed Economies Move Toward Privatization

Mixed Economy Privatization Policy of selling government-owned economic resources to private companies and individuals

MARKET ECONOMY Origins of the Market Economy Features of a Market economy Government’s Role in a Market Economy Economic Freedom

MARKET ECONOMY Market Economy Economic system in which the majority of a nation’s land , factories, and other economic resources are privately owned ,either by individuals or business. Supply Quantity of a good or service that producers are willing to provide at a specific selling price Demand Quantity of a good or service that buyers are willing to purchase at a specific selling price

MARKET ECONOMY Origins of the Market Economy Features of a Market Economy Free choice Free enterprise Price flexibility

MARKET ECONOMY Government’s Role in a Market Economy Enforcing Antitrust Laws Preserving Property Rights Providing a Stable Fiscal and Monetary Environment. Preserving Political Stability.

DEVELOPMENT OF NATIONS National Production Purchasing Power Parity Human Development Classifying Countries. http://www.webwarper.net/ww/~av/vietnamnet.vn/thegioi/2009/07/856429/

DEVELOPMENT OF NATIONS Economic Development Measure for gauging the economic well-being of one nation’s people as compared with that of another nation’s people.

National Production Uncounted Transactions Question of Growth Problem of Averages Pitfalls of Comparison

National Production Uncounted Transactions Many of a nation’s transactions do not get counted in either GDP or GNP. Some of the activities not included are: Volunteer work Unpaid household work Illegal activities such as gambling and black market transactions Unreported transactions conducted in cash

Purchasing Power Parity value of goods and services that can be purchased with one unit of a country’s currency Purchasing Power Parity (PPP) Relative ability of two countries’ currencies to buy the same “basket” of goods in those two countries.

Human Development Human Development Index (HDI) Measure of the extend to which a people’s needs are satisfied and the degree to which these needs are addressed equally across a nation’s entire population

Classifying Countries Developed Country Newly Industrialized Countries Developing Countries

Classifying Countries Developed Countries Country that is highly industrialized highly efficient , and whose people enjoy a high quality of life

Classifying Countries Newly Industrialized Country (NIC) Country that has recently increased the portion of its national production and exports derived from industrial operations Emerging Markets Newly industrialized countries plus those with the potential to become newly industrialized

Classifying Countries Developing Country Nation that has a poor infrastructure and extremely low personal incomes Technological Dualism Use of the latest technologies in some sectors of the economy coupled with the use of outdated technologies in other sectors

ECONOMIC TRANSITION Obstacles to Transaction Focus on Russia

ECONOMIC TRANSITION Economic Transaction Process by which a nation changes its fundamental economic organization and creates new free-market institutions.

Obstacles to Transition Lack of Managerial Expertise Shortage of Capital Cultural Differences Environmental Degradation

Focus on Russia Rough Transaction Challenges Ahead for Russia One Bright Spot

Focus on Russia Rough Transaction Challenges Ahead for Russia One Bright Spot

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