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Chapter 2. Global Economy

This document defines key economic concepts and categories of economies. It discusses the components of an economy including goods and services. It also explains the different types of economies such as traditional, command, market, and mixed economies. Specific examples are provided for traditional and command economies. The document also covers concepts like producers, consumers, scarcity, opportunity cost, types of industries, supply and demand.

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117 views35 pages

Chapter 2. Global Economy

This document defines key economic concepts and categories of economies. It discusses the components of an economy including goods and services. It also explains the different types of economies such as traditional, command, market, and mixed economies. Specific examples are provided for traditional and command economies. The document also covers concepts like producers, consumers, scarcity, opportunity cost, types of industries, supply and demand.

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ECONOMY

• A system for producing, distributing, and


consuming goods, and services
COMPONENTS OF ECONOMY
1. Goods
▪ products that are made to be
sold
▪ Cars, baskets, computers, paper, clothes
2. Services
▪ work done or duties performed
for other people
▪ The work of a doctor or of a television repair
person
GOODS AND SERVICES T-CHART
GOODS SERVICES
COMPONENTS OF ECONOMY
1. PRODUCER
▪a person who makes products or offer
services that are used by other people
▪Owners and workers
2. CONSUMER
▪ a person who buys goods and services
▪ Everyone who buys things
CATEGORIES OF ECONOMIES
1. TRADITIONAL ECONOMY
▪ a system in which the allocation of
resources and other economic activities are
affected by ritual, customs, or habit.

▪ Example: The Tuareg of the Sahara in


northern Africa are nomadic herders who
travel about the region in search of food
and water for their animals. They produce
most of the things they need and trade with
others for what they need and cannot
produce
CATEGORIES OF ECONOMIES
2. COMMAND ECONOMY
▪ a system organized around a central
authority which makes most of the major
economic decisions
▪ The government decides what products
are made, how much is produced, and
what the goods cost
▪ Example: Cuba’s Economy
CATEGORIES OF ECONOMIES
Cuba’s Command Economy
▪ Most of the means of production are owned
and run by the government and most of the
labor force is employed by the state
▪ In the year 2000, the
public sector
employment was 76%
and the private sector at
23%.
▪ The Cuban government
sets most prices and
rations goods to
citizens.
CATEGORIES OF ECONOMIES
3. MARKET ECONOMY
▪ individuals depend on supply, demand, and
prices to determine the answers to the
four economic questions of:
a) "what to produce"
b) "how to produce"
c) "how much to produce" and
d) "for whom to produce”
CATEGORIES OF ECONOMIES
3. MARKET ECONOMY
▪ most businesses are privately
owned.
▪ When a company sells its products, it earns
a profit.
▪ Owners decide how to use profits
and how much to pay workers.
▪ Question: Why would consumers be
important to a market economy?
CATEGORIES OF ECONOMIES
4. MIXED ECONOMY
▪ Combination of market and command
economy
SUPPLY AND DEMAND
▪ The market will determine the price of
goods and services

▪ Review Questions:
a) If demand is low and there is a large
supply what happens to price?
b) If demand is high and supply is low
what happens to price?
INDUSTRY
▪ process of making products by using
machinery and factories
▪ Group of businesses that provide a
particular service or product
▪ Industries differ in their involvement in the
processing of natural resources, the
production and marketing of goods, and the
development of products and ideas.
TYPES OF INDUSTRY
1. PRIMARY
▪ Takes natural resources or raw materials
from the earth
▪ Examples?
• Fishing
• Farming
• Lumbering
• oil drilling
TYPES OF INDUSTRY
2. SECONDARY
▪ processes raw materials into finished
products.
▪ Examples?
• steel plants or processing plants which
turn agricultural products into canned
or frozen goods.
TYPES OF INDUSTRY
3. TERTIARY
▪ exchanges and markets the products of
the primary and secondary industries
▪ provide services
Examples?
• restaurants, supermarkets, hospitals,
education, and emergency services
TYPES OF INDUSTRY
4. QUARTENARY
▪ parts of the economy concerned with
research, the gathering and dissemination of
information, and administration
▪ sometimes included with the tertiary sector,
as they are both service sectors
▪ Examples?
• medical research and consultancy
(offering advice to businesses)
SCARCITY
▪ condition of not being able to have all of the
goods and services one wants because
resources are limited and our wants are not.
SCARCITY
▪ Resources do not exist in sufficient quantities
to satisfy all desires to use them
✓ Example: Land, goods, and labor
(machinery, people to do the work,etc.)
▪ Individuals, governments, and businesses
experience economic scarcity and therefore
must make choices or trade-offs which have
both present and future consequences.
SCARCITY
OPPORTUNITY COST
▪ The cost of an alternative, or the trade-off,
that is given up in order to pursue a certain
action.
▪ the benefits you could have received by
taking an alternative action.
✓ Example?
SCARCITY
▪ Rarely can one region or nation satisfy all
demands.
▪ This forces regions and nations to trade goods
and services.
▪ Trade
✓ Exchanging goods and services with people
for other goods and services or for money
✓ When people trade voluntarily, they expect to
be better off as a result
SCARCITY
▪ Some under-developed nations are not
able to develop their own resources
because they lack the finance to
support industries and lack the
technology and expertise to process the
raw materials into goods.
SCARCITY
▪ Other nations often invest in industries,
creating international companies to
process and export the goods.
▪ In this instance, the country owning the
resources does not profit as much as
the country which invests in and
processes the resources.
LIFE TODAY IS BETTER THAN EVER BEFORE

Source: Our World In Data, World Bank, OECD, UNESCO


GLOBAL GROWTH: TOO LOW FOR TOO LONG

Source: IMF World Economic Outlook data base


Order of bars for each group indicates (left to right):, 2017, 2018 projections, and 2019
projections
WHO BENEFITS THE MOST FROM
GLOBALIZATION?

Source: Branko Milanovic, Global income inequality by the numbers: in history and now - an
overview
WHO BENEFITS THE MOST FROM
GLOBALIZATION?
Benefited the most
▪ Global middle class (mostly China)
▪ Very rich
Biggest losers (or at least the non-winners)
▪ Very poor
▪ middle class in advanced
economies
Credits: Jan Kruger/Getty Images
ONLY THE RICHEST HAVE SEEN THEIR
INCOMES RISE RAPIDLY

Source: U.S. Department of Commerce, Bank of Latvia calculations


CHINA: THE BIGGEST SUPPORTER OF
OPENNESS

"It will be an era that sees


China moving closer to
center stage and making
greater contributions to
mankind.”

(19th National Congress of the Communist


Party of China in Beijing, 2017)

Source: World Economic Forum

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