Chapter 3 Political And Economic Analysis – 2 What is an economy? Economy The organized way in which a nation meets the needs and wants of its people. An X economy is the organized way a nation provides for its people. A country’s resources determine economic activities such as: Production and transportation Buying and selling Investment Basics of Marketing Chapter 3, Section 3.1
3 Resources Resources All the things that are used to produce goods and services. Production factors Economic term for the four categories of resources: land, labor, capital and entrepreneurship. Resources X are all the things used to produce goods and services. Economists use the term factors of production X when talking about resources. Essence of Marketing Chapter 3, Section 3.1
Chapter 3 Political And Economic Analysis
5 Resources Land includes all resources on land or in the sea, for example: Coal Crude Oil Trees Water Basics Chapter 3, Section 3.1
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Raw materials for the production of goods and services Tourist attractions The country of Spain is an economic resource that makes the country an attractive tourist destination. Essence of Marketing Chapter 3, Section 3.1
Full-time and part-time employees Managers Professionals in the public and private sectors Marketing Basics Chapter 3, Section 3.1
8 What is an economy? Capital includes money to start and run a business, as well as goods used in the production process, such as factories, office buildings, computers, tools. Essence of Marketing Chapter 3, Section 3.1
9 What is an economy? Entrepreneurs are willing to invest time and money to run a business. Also business people: organize factors of production to create goods and services.
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11 Scarcity Scarcity The gap between what consumers want and need and what resources are available. The difference between a country’s unlimited wants and limited resources is called scarcity X. It forces nations to make economic decisions. Essence of Marketing Chapter 3, Section 3.1
Nations must answer three basic questions about their economic system: What goods and services should be produced? How will goods and services be produced? For whom are the goods and services produced? Essence of Marketing Chapter 3, Section 3.1
There are three broad categories into which economic systems are classified: Traditional Market Command No economy is only one type. Essence of Marketing Chapter 3, Section 3.1
Traditional economy traditions and rituals that answer basic questions about what, how and for whom. In a traditional X-economy, traditions and rituals answer basic questions. What: People who have been part of an agricultural community for generations. There is little choice in what to produce. How: The practice of a family’s ancestors continues. For whom: Tradition governs who buys and sells. Essence of Marketing Chapter 3, Section 3.1
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15 Market Economy Market Economy An economic system in which individuals and companies decide what should be produced, when and how it should be distributed. In a pure market economy X, there is no government involvement in economic decisions. The market is free to answer: What: to produce. How: To be competitive in retail competitors. For whom: To sell your goods and services. Essence of Marketing Chapter 3, Section 3.1
16 Command economy Command economy Economic system in which the state decides what, when and how much should be produced and distributed. In a command economy X, the government of a country makes economic decisions and decides: What products are needed. How the government makes decisions. For whom the wealth of the government is regulated to make everyone equal. Essence of Marketing Chapter 3, Section 3.1
17 Mixed Economies Since all economies in the world today are mixed, a meaningful classification depends on which government interferes with the free market. Essence of Marketing Chapter 3, Section 3.1
18 Mixed Economies Economic freedom to the right of center encourages competition, while systems to the left are more regulated by their governments. Essence of Marketing Chapter 3, Section 3.1
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19 Capitalism Capitalism is a political and economic philosophy characterized by market competition and private ownership of companies. The political system most closely associated with capitalism is democracy. Capitalist countries include the United States and Japan. Essence of Marketing Chapter 3, Section 3.1
20 Communism Communism is a social, political and economic philosophy in which the authorities control the factors of production. There is no financial incentive for people to increase productivity. Essence of Marketing Chapter 3, Section 3.1
23 Socialism Socialist countries have more government involvement, but the market is not completely controlled. The state generally controls non-competitive companies in areas such as: telecommunications and natural resources transportation and banking marketing, Chapter 3, Section 3.1.
24 Socialism Modern countries with socialist elements in their economies include: Canada Germany Sweden Marketing Basics Chapter 3, Section 3.1
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25 Socialism Today, many socialist countries are selling off some of their state-owned enterprises to help meet the rising costs of: National health care Unemployment Pension programs Marketing Basics Chapter 3, Section 3.1
26 Developing economies Developing economies are mostly poor countries with little industrialization that improve their infrastructure to become more prosperous. These countries need to improve: Education and Technology Exports and Means of Production Marketing Basics Chapter 3, Section 3.1
Key Terms Productivity Gross Domestic Product (GDP) Gross Domestic Product (GDP) Inflation Consumer Price Index (CPI) Producer Price Index (PPI) Business Cycle Expansion Recession Depression Recovery Goals List the goals of a healthy economy Explain how an economy is measured Analyze four key phases of the business cycle Basics of Marketing Chapter 3 , section 3.2
Graphical Organization Draw a chart like this one and use it to take notes on financial metrics. Essence of Marketing Chapter 3, Section 3.2
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If you are a marketer and want to conduct a useful SWOT analysis, consider economic factors such as: Economy and Consumers Businesses and Governments Marketing Basics Chapter 3, Section 3.2
A healthy economy has three goals: Increase productivity Reduce unemployment Keep prices stable Marketing Basics Chapter 3, Section 3.2
By analyzing their economies, nations track how well they are doing. The main economic measures used to determine economic strength are: Labor productivity Gross domestic product (GDP) Marketing Basics Chapter 3, Section 3.2
Productivity The output per hour of work measured over a defined period of time, for example a week, a month or a year. Productivity X is the output per hour of work measured over a defined period of time, for example a week, a month or a year. Essence of Marketing Chapter 3, Section 3.2
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Businesses can increase productivity by: Investing in new equipment or facilities Providing additional training or financial incentives Reducing the workforce and increasing responsibilities Marketing Basics Chapter 3, Section 3.2
Two key concepts related to increasing productivity are: Specialization Division of Work Marketing Basics Chapter 3, Section 3.2
Gross Domestic Product (GDP) The output of goods and services produced by labor and property in a nation. Gross domestic product (GDP) X is the output of goods and services produced by labor and property in a country. Essence of Marketing Chapter 3, Section 3.2
GDP consists of: Private Investment Public Expenditure Personal Expenditure Net Exports of Goods and Services Change in Business Inventory Marketing Basics Chapter 3, Section 3.2
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Here is the GDP calculation. Add private investment, public spending, and personal spending Add a trade surplus or subtract a trade deficit.
Gross Domestic Product (GDP) The total dollar value of goods and services produced by a nation. Gross domestic product (GDP) X is the total dollar value of goods and services produced by a nation, including goods and services produced abroad by US citizens and businesses. The United States used to measure its economy by GDP, but switched to GDP in 1991. Marketing Basics Chapter 3, Section 3.2
A country’s standard of living is a measure of the quantity and quality of goods and services available to a nation’s population. To calculate the standard of living: Divide a country’s GDP or GDP by its population to get GDP per capita or GDP Marketing Basics Chapter 3, Section 3.2
Inflation period of rising prices. X Inflation refers to the increase in prices. The higher the inflation, the less the country’s money will be. To fight inflation, governments raise interest rates to borrow money and slow economic growth. Essence of Marketing Chapter 3, Section 3.2
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Consumer Price Index (CPI) measure of retail price changes over a period. The United States measures inflation using the consumer price index and the producer price index. The Consumer Price Index (CPI) X measures the price change over a period of about 400 specific retail goods and services used by the average urban household. Essence of Marketing Chapter 3, Section 3.2
Producer Price Index (PPI) A measure of the level of wholesale prices in the economy. The producer price index (PPI) X measures the level of wholesale prices in the economy. It is often a trend marker as producer prices are generally passed on to the consumer. Essence of Marketing Chapter 3, Section 3.2
The conference board is made up of companies that work together to evaluate the economy. They use three indicators: Consumer Confidence Index Consumer Expectations Index Employment Index Marketing Basics Chapter 3, Section 3.2
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