1. International Business Chapter 2 Economics and Decision Making

2. 2.1 The Basic Economic Problem
Consumers are limited by the amount of time and money they have available to acquire the things they want.
Countries and individuals have limited resources. Decisions are necessary to make the best use of resources.
Scarcity – limited resources available to satisfy the unlimited needs and wants of people
Economics – the study of how people choose to use limited resources to satisfy their unlimited needs and wants

3. Study of economics helps people understand…
Why some earn more than others
Why certain items cost more at different times of the year
Why business managers make one choice over another

4. Making Economic Decisions
Step 1: Define the problem.
Step 2: Identify the alternatives. What are the different ways my problem can be solved?
Step 3: Evaluate the alternatives. What are the advantages and disadvantages of each?
Step 4: Choose. Based on advantages and disadvantages and can you live with your choice?
Opportunity costs – most attractive alternative given up when a choice is made
Step 5: Act on the choice.
Step 6: Review the decision. Did your decision solve the problem?

5. Individual checkpoint
Select an important decision that you might have to make this year. This could be buying a car, selecting post-secondary plans, selecting a specific college, selecting a major, or any other significant decision. Work through the six steps of the decision making process to help you make your decision.

6. 2.2 Basics of Economics
Supply – Quantity of a product or service that businesses are willing and able to provide at a certain price. Demand – Quantity of a product or service that consumers are willing and able to buy at a certain price.

7. How many CDs will be demanded at $16 a piece?
Who determines demand?
Consumers
How many CDs will be demanded at $16 a piece?
500

8. How many CDs will be supplied at $18 a piece?
Supply
Who determines Supply?
Producers
How many CDs will be supplied at $18 a piece?
700

9. Supply and Demand Affect Prices
Business must decide what price to charge
Can’t be too high  Won’t sell
Can’t be too low  No profit made
Their goal: produce a product as long as it can be sold at a price that covers the cost of producing it and they can make a profit
Law of demand – as price declines, demand increases
As demand increases, prices tend to increase
As a group identify some examples of items in demand right now
Demand for a product affects the price.
Supply and demand together determine how of product to be produced and what to charge.
Why is the price for holiday cards relatively high before the holiday?
Why does the price drop dramatically the day after the holiday?
Quantity of Product – Affects price due to availability of product
Diamonds
Oil
Notes Question – Why do you think this occurs? High demand, leads to high prices

10. Supply and Demand challenge

11. Supply and Demand challenge

12. Supply and Demand challenge

13. Supply and Demand challenge

14. Supply and Demand challenge

15. Meet in the Middle
Market price (equilibrium) – the point where supply and demand intersect

16. Surplus and Shortages
Surplus – The excess quantity supplied by the producer Shortage - Not enough of a good or service to meet the demands of consumers

17. 2.3 Economic Systems
Factors of production – the three types of resources used to produce goods and services
Natural resources – also known as land are raw materials that come from the earth, water, and air
Human resources – also known as labor are the people who work to create goods/services
Capital resources – also called capital include buildings, money, equipment and facilities used to produce goods/services

18. Checkpoint
Analyzing Dallastown Area School District as a business, list the factors of production we utilize. Recorders are responsible for writing down group thoughts and speakers will report to the class

19. Types of Economic Systems
Due to scarce economic resources, there are 3 KEY ECONOMIC QUESTIONS that every country must answer.
What to produce?
How to produce?
For whom?

20. Types of Economic Systems
Economic system – method a country uses to answer the basic economic questions
Three common types of economic systems
Command economy
Market economy
Mixed economy

21. Command Economy (Central Planning) -
Resources are owned and controlled by the government AND the government makes all decisions
Dictate what and how goods will be produced and how they will be distributed
Freedom of the people is limited
Communism – a political and economic environment where the government owns all the productive resources of the economy and a single party controls the government
Businesses are given a plan from the government that tells them what they will be producing
Determines all the prices, styles, colors, and even the amount to be produced.
Goods not considered a necessity may not be produced
Little choice in goods available
No incentive to produce better products because there is no competition
Government can even tell you what your job will be – No CHOICE
Examples:
Former Soviet Union (now broke up into different countries and moving towards a market economy)
North Korea
Cuba
China
Some Latin American Countries
African Countries
Write communism and socialism on the board
Communism – governments make all decision
Socialism – some private enterprises exist – France & Sweden
Advantages:
Everyone has same standard of living (job, place to live, healthcare)
Lower crime & poverty – needs/wants are equally met
Disadvantages:
No choice
Prices fixed, wage fixed

22. Market Economy (Free Enterprise System) -
Resources are owned and controlled by the people of the country.
Economic questions are answered by individuals through buying and selling in the marketplace - any place where buyers and sellers exchange goods, services, and some form of money
Capitalism – the political and economic environment where a market economy exists
Three main characteristics:
Private property
Profit motive
Free, competitive market
Primary economic system in industrialized countries and those with democratic forms of government.
Little involvement of the government
Marketplace = supermarket, the Internet, a business office
Consumers and businesses make decisions based on their own self interest.
When a business buys a new truck or orders several tons of steel, it is making an economic decision
When you decide to go to the movies or go to college, you are making an economic decision
Ask students: What is the purpose of running a business in a market economy?
Purpose of most businesses is to make profit.

23. Mixed Economy -
A blend between government involvement in business and private ownership
Publicly owned industries generate income to help fund the government
Socialism – a political and economic environment with most basic industries owned and operated by government with government controlled by the people
Privatization – process of changing an industry from publicly to privately owned
Businesses are given a plan from the government that tells them what they will be producing
Determines all the prices, styles, colors, and even the amount to be produced.
Goods not considered a necessity may not be produced
Little choice in goods available
No incentive to produce better products because there is no competition
Government can even tell you what your job will be – No CHOICE
Examples:
Former Soviet Union (now broke up into different countries and moving towards a market economy)
North Korea
Cuba
China
Some Latin American Countries
African Countries
Write communism and socialism on the board
Communism – governments make all decision
Socialism – some private enterprises exist – France & Sweden
Advantages:
Everyone has same standard of living (job, place to live, healthcare)
Lower crime & poverty – needs/wants are equally met
Disadvantages:
No choice
Prices fixed, wage fixed

24. So what is a mixed economy?
system.asp

25. Minimum Wage – the great debate

26. 2.4 Economic Development Economic development factors:
Literacy level – countries with better education systems usually provide more goods/services and higher quality
Technology – automated production, distribution, and communication systems
Agricultural dependency – a country largely focused on agriculture does not have manufacturing base

27. Types of Development Less-developed country Developing county
Industrialized country

28. Less-Developed Country (LDC)
A country with little economic wealth and an emphasis on agriculture or mining
Citizens often have problems such as inadequate housing, starvation, and poor healthcare
Average annual income per person less than $1,000 USD.
Low literacy
Limited technology
Agriculture/mining

29. Developing Country (Emerging Markets)
A country evolving from less-developed to industrialized
Improving literacy
Improving technology
Decreased dependence on Agriculture/mining

30. Industrialized Country
A country with strong business activity that is usually the result of advanced technology and a highly educated population
Better prepared for international business
Infrastructure – nation’s transportation, communication, and utility system
High literacy
Modern technology
Industrial economy

31. 2.5 Resources Economics of Foreign Trade:
Absolute advantage – when a country can produce a good or service at a lower cost than other countries
Ex: South American countries and coffee production
Comparative advantage – when a country specializes the production of a good or service at which it is relatively more efficient

32. Measuring Economic Progress
Gross domestic product (GDP) – measures the output of goods a country produces within its borders, including items produced with resources
Strength of a countries domestic economy
Gross national produce (GNP) – measures total value of all goods and services produced by the resources of a country
Contributions of residence towards a country’s economy

33. Per capita
Because all nations have different populations, comparing GDP and GNP is not always meaningful
Per capita – an amount per person
Per capita GDP = Total GDP / # of people in country

34. International Trade Activity
Balance of trade – difference between a country’s imports and exports
Trade surplus – country sells more than it buys
Trade deficit – country buys more than it sells
Foreign exchange rate – value of one country’s money in relation to another country
Foreign debt – amount a country owes to other countries
Consumer price index (CPI) – monthly U.S. federal government report on inflation