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 What you will learn….
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.
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
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.
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)
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
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
WHY DO PEOPLE TRADE? • Each society must evaluate its resources and make decisions on how to use those that are limited.
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.
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.
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
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.
Production and Resources • Production possibilities curve – a graphic illustration of the combination of output that can be produced if all resources are used efficiently.
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.
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.
PER CAPITA GDP • The amount of product produced within a nation’s borders, per person in a year is the per capita GDP.
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
Business Peak • High levels of economic activity • High employment • Healthy sales of goods and services • Good Times!! • The late 1920’s & 1990’s!
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
Economic Expansion • Leads out of the trough to the peak. • Cycle repeats itself.
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)
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.
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 Composite Indexes of Economic Indicators