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Chapter 4

Chapter 4. The Economic Environment. Major Industrialized Countries of the World. Market Characteristics. Population demographics Age distribution, life expectancies, household size, urbanization. Income Distribution of low, medium, and high incomes. Gross domestic product per capita.

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Chapter 4

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  1. Chapter 4 The EconomicEnvironment

  2. Major Industrialized Countries of the World

  3. Market Characteristics • Population demographics • Age distribution, life expectancies, household size, urbanization. • Income • Distribution of low, medium, and high incomes. • Gross domestic product per capita. • Purchasing power parity. • Consumption patterns • Income spent on necessities and luxuries. • Product saturation or diffusion. • Product form differences.

  4. The World Economic Pyramid Annual per Capita Income* Tiers Population in Millions 75-100 More Than $20,000 $1,500-$20,000 1,500-1,750 Less Than $1,500 4,000 *Based on Purchasing power parity in U.S. $. SOURCE: U.N. World Development Reports

  5. Market Characteristics (continued) • Availability and quality of infrastructure • Rail traffic networks for distribution capabilities. • Communication systems for marketing. • Energy (electrical and fuel) consumption. • Impact of the economic environment on social development • Urbanization, life expectancy, literacy rates, etc. • Physical Quality of Life Index (PQLI).

  6. Economic Integration

  7. Regional Economic Integration • Levels of economic integration • Free Trade Area • Least restrictive. • Goods and services are freely trades among all members. Each country maintains its own trade barriers for nonmembers. • Customs Union • Members establish a common trade policy with respect to nonmembers. • Common Market • Factors of production mobility is emphasized. A common external tariff is adopted. • Economic Union • Integration and harmonization of economic and monetary policies is achieved leading to political union.

  8. Free Trade Area • Eliminates tariff and quota barriers among member countries. • Each country is free to set its own tariff and quota barriers against nonmember countries. • Can be formed for certain classes of goods or services only.

  9. Customs Union Area • Tariff and quota barriers among member countries are eliminated. • Member countries establish common tariff and trade barriers against nonmember countries. • Tariff revenues are shared among members according to a prescribed formula.

  10. Common Market Area • No trade barriers among member nations. • No restriction on the movement of labor, capital, or technology across borders. • Member countries establish common tariff and trade barriers against nonmember countries.

  11. Economic Union • Has all the characteristics of a common market. • Harmonizes taxation. • Harmonizes government spending. • Harmonizes monetary policies. • Establishes a common currency.

  12. European Integration • Expected economic growth from: • Eliminating transaction costs. • Economies of scale will be attained as production becomes concentrated. • More intense competition from EU companies. • Operations from one country can be freely expanded to other countries. • Products can be freely sold across borders to millions of new consumers. • There is a “Fortress Europe” fear.

  13. North America Integration • Is for purely economic reasons. • There are no constituencies for political integration. • NAFTA. • “Maquiladoras.”

  14. NAFTA • The North American Free Trade Agreement (NAFTA) created the world’s largest free market. • 390 million U.S., Canadian, and Mexican consumers and a total output of $10 trillion.

  15. Free Trade Area of the Americas   • An agreement to form a regional trading zone stretching from Point Barrow, Alaska to Patagonia, Argentina.

  16. Integration in Asia • Association of Southeast Asian Nations (ASEAN) • East Asia Economic Group • Asia-Pacific Economic Cooperation (APEC) • South Asian Association for Regional Cooperation (SAARC)

  17. Integration in Africa and the Middle East • Economic Community of West African States (ECOWAS) • The African Union (AU) • The Arab Maghreb Union • Gulf Cooperation Council (GCC)

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