2. ECONOMIC CONCEPTS FOR AN INTERNATIONAL MARKETER Chapter 4

3. 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

4. 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.

5. 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

6. 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.

7. 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)

8. 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

9. 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

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

11. 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.

12. 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.

13. 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

14. 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.

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

16. 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.

17. 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.

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

19. 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

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

21. 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

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

23. 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)

24. 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.

25. 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