ECO 1003 Handouts for Chapters 3-4-5

Chapter 3 The Lion, the Dragon, and the Tigers: Economic Growth in Asia Tigers: Singapore, Malaysia, Thailand and Indonesia A combination of low wages and high export sales represented the fast track to economic growth and prosperity Dragon of Asia: China

Chapter 3 The Lion, the Dragon, and the Tigers: Economic Growth in Asia Direct foreign investment (FDI) Resources provided to individuals and firms in a nation by individuals or firms located in other countries, often taking the form of foreign subsidiary or branch operations of a parent company Purchasing power The amount of goods or services that can be purchased with a unit of currency

Chapter 4 Outsourcing and Economic Growth Economic growth Sustained increases over time in real per capita income Per capita income Average income per person Trade barrier Any rules having the effect of reducing the amount of international exchange; tariffs and quotas are trade barriers

Chapter 4 Outsourcing and Economic Growth Outsourcing The practice of having workers located in foreign lands perform tasks typically services that have traditionally been performed by domestic workers Insourcing Insourcing is the opposite of outsourcing Insourcing is a business decision that is often made to maintain control of critical production or competencies Insourcing is widely used in production to reduce costs of taxes, labor and transportation

Chapter 4 Outsourcing and Economic Growth Outsourcing is defined as the purchase of foreign labor by domestic companies and, other than dealing with the labor market, is really no different in principal than purchasing goods or services in a foreign market The presence of a foreign goods market effectively increases the domestic supply of goods, reduces domestic prices, increases domestic quantities consumed, and raises domestic consumer surplus while reducing domestic producer surplus The same is true when domestic countries purchase foreign labor; the effective supply of labor rises, wages fall, foreign workers, firms, and their consumers benefit

Chapter 4 Outsourcing and Economic Growth Outsourcing Arguments that preclude outsourcing have as much economic merit as protectionist arguments that prevent a nation’s citizens from buying foreign goods Arguments against outsourcing usually ignore economic analysis and can be summarized as a fear of wage equalization across countries

Chapter 5 Poverty, Capitalism, and Growth Abject poverty Surviving on the equivalent of $1 or less of income per person per day Real per capita income GDP corrected for inflation and divided by the population- a measure of the amount of new domestic production of final goods and services per person Standard of living A summary measure of the level of per capita material welfare, often measured by per capita real GDP

Chapter 5 Poverty, Capitalism, and Growth Industrial Revolution The widespread radical socioeconomic changes that took place in England and many other nations beginning in the late eighteenth century, brought about when extensive mechanization of production systems resulted in a shift from home-based hand manufacturing to large-scale factory production Property and contract rights Legal rules governing the use and exchange of property and the enforceable agreements between people or businesses

Chapter 5 Poverty, Capitalism, and Growth European Union (EU) A supranational entity resulting from an agreement among European nations to closely integrate the economic, political and legal systems of the 27 individual member nations Institutions of the EU include the European Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union, the European Central Bank, the Court of Auditors, and the European Parliament The European Parliament is elected every five years by EU citizens

Chapter 5 Poverty, Capitalism, and Growth The EU traces its origins from the European Coal and Steel Community (ECSC) and the European Economic Community (EEC), formed by the Inner Six countries in 1951 and 1958 respectively In the intervening years the community and its successors have grown in size by the accession of new member states and in power by the addition of policy areas to its remit The Maastricht Treaty established the European Union under its current name in 1993 The latest major amendment to the constitutional basis of the EU, the Treaty of Lisbon, came into force in 2009

Chapter 5 Poverty, Capitalism, and Growth The European Union is composed of 27 sovereign member states: Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. The original six founding states—Belgium, France, West Germany, Italy, Luxembourg and the Netherlands Croatia will become the 28 th member state of the EU on 1 July 2013 after a referendum on EU membership was approved by Croatian voters on 22 January 2012 There are five candidate countries: Iceland, Macedonia, Montenegro, Serbia and Turkey