Economic Systems and Development in International Business

1. CHAPTER IVECONOMIC SYSTEMS AND DEVELOPMENT INTERNATIONAL BUSINESS

2. Learning Objectives • Describe what is meant by a centrally planned economy and explain why its use is declining. • Identify the main characteristics of a mixed economy and explain the emphasis on privatization. • Explain how a market economy functions and identify its distinguishing features. • Describe the different ways to measure a nation’s level of development. • Discuss the process of economic transaction and identify the remaining obstacle for business.

3. ECONOMIC SYSTEMS • Centrally Planned Economy • Mixed Economy • Market Economy

4. ECONOMIC SYSTEMS • Economic System Structure and processes that a country uses to allocate its resources and conducts its commercial activities.

5. MIXED ECONOMY CENTRALLY PLANNED ECONONY ECONOMIC SYSTEMS ECONOMIC SYSTEM MARKET ECONOMY

6. Centrally Planned Economy • Centrally Planned Economy Economic system in which a nation’s land, factories, and other economic resources are owed by the government, which plans nearly all economic activity

7. Centrally Planned Economy • Origins of the Centrally Planned Economy • Decline of Central Planning • Failure to Create Economic Value • Failure to Achieve Rapid Growth • Failure to Satisfy Consumer needs • Focus on China

8. Mixed Economy • Mixed Economy Economic system in which land , factories and other economic resources are rather equally split between private and government ownership • Origins of the Mixed Economy • Decline of Mixed Economies • Move Toward Privatization

9. Mixed Economy • Privatization Policy of selling government-owned economic resources to private companies and individuals

10. MARKET ECONOMY • Origins of the Market Economy • Features of a Market economy • Government’s Role in a Market Economy • Economic Freedom

11. MARKET ECONOMY • Market Economy Economic system in which the majority of a nation’s land , factories, and other economic resources are privately owned ,either by individuals or business. • Supply Quantity of a good or service that producers are willing to provide at a specific selling price • Demand Quantity of a good or service that buyers are willing to purchase at a specific selling price

12. MARKET ECONOMY • Origins of the Market Economy • Features of a Market Economy • Free choice • Free enterprise • Price flexibility

13. MARKET ECONOMY • Government’s Role in a Market Economy • Enforcing Antitrust Laws • Preserving Property Rights • Providing a Stable Fiscal and Monetary Environment. • Preserving Political Stability.

14. DEVELOPMENT OF NATIONS • National Production • Purchasing Power Parity • Human Development • Classifying Countries.

15. DEVELOPMENT OF NATIONS Economic Development Measure for gauging the economic well-being of one nation’s people as compared with that of another nation’s people.

16. National Production • Uncounted Transactions • Question of Growth • Problem of Averages • Pitfalls of Comparison

17. National Production • Uncounted Transactions Many of a nation’s transactions do not get counted in either GDP or GNP. Some of the activities not included are: • Volunteer work • Unpaid household work • Illegal activities such as gambling and black market transactions • Unreported transactions conducted in cash

18. Purchasing Power Parity • Purchasing Power value of goods and services that can be purchased with one unit of a country’s currency • Purchasing Power Parity (PPP) Relative ability of two countries’ currencies to buy the same “basket” of goods in those two countries.

19. Human Development • Human Development Index (HDI) Measure of the extend to which a people’s needs are satisfied and the degree to which these needs are addressed equally across a nation’s entire population

20. Classifying Countries • Developed Country • Newly Industrialized Countries • Developing Countries

21. ClassifyingCountries • Developed Countries Country that is highly industrialized highly efficient , and whose people enjoy a high quality of life

24. Classifying Countries • Newly Industrialized Country (NIC) Country that has recently increased the portion of its national production and exports derived from industrial operations • Emerging Markets Newly industrialized countries plus those with the potential to become newly industrialized

26. Classifying Countries • Developing Country Nation that has a poor infrastructure and extremely low personal incomes • Technological Dualism Use of the latest technologies in some sectors of the economy coupled with the use of outdated technologies in other sectors

28. ECONOMIC TRANSITION • Obstacles to Transaction • Focus on Russia

29. ECONOMIC TRANSITION Economic Transaction Process by which a nation changes its fundamental economic organization and creates new free-market institutions.

30. Obstacles to Transition • Lack of Managerial Expertise • Shortage of Capital • Cultural Differences • Environmental Degradation

31. Focus on Russia • Rough Transaction • Challenges Ahead for Russia • One Bright Spot

32. Focus on Russia • Rough Transaction • Challenges Ahead for Russia • One Bright Spot

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