Chapter 2 OUTLINE Our Global Economy

GLOBAL FOCUS: DUAL ECONOMIES

In the early 1900’s, Mexico had several economic problems. The government created programs to
help the jobless but the money they got back went into paying back the notes and not into public
services. The Mexican government allowed more foreign businesses to produce and sell goods,
reduced government spending and shifted programs to only serve the neediest. Sold several
unprofitable government-owned businesses that were costing taxpayers money, and worked out a
new plan to reduce government debt.

LESSON 2-1 ECONOMICS AND DECISION MAKING

THE BASIC ECONOMIC PROBLEM

Everyone is limited by the amount of time and money you have

available to acquire the things you want. Scarcity refers to limited
resources available to satisfy the unlimited needs and wants of people.
The study of how people choose limited resources is called economics.

MAKING ECONOMIC DECISIONS

THE DECISION-MAKING PROCESS

There are six steps in the decision making process, which helps people make better decisions and
make use of their limited resources. Step one in the decision making process is to define the
problem by asking “what do I need or want?” Step two in the decision making process is to
identify the alternatives by asking “What are the different ways my problem can be solved?” Step
three in the decision making process is to evaluate the alternatives by asking “What are the
advantages and disadvantages of each of the choices available?” Step four is to make a choice by
asking “Based on the advantages and disadvantages, which would be my best choice? Can I live
with the consequences of that choice?”

DECISION MAKING IN ACTION

One example of defining the problem in the first step of the decision making process might be,
“how can the Benson Electric Company continue to increase its sales over the next five years?”
Let us say that this company only sells in the United States. An example of the second step in the
decision making process, Identify the alternatives, might include, increasing advertising to attract
new customers, reducing prices to attract more customers, or selling products over the Internet
and mailing information to customers in other countries. The third step would be evaluating the
alternatives by comparing the risks and costs of the alternative. For example, reducing prices may
increase the number of customers but could reduce total dollar sales. The next step would be to
make a choice. Oftentimes, companies consider the opportunity cost, which is the most attractive
alternative given up when a choice is made. For example, not going to college to pursue a job
could end up in having more money saved in the future but that would also mean that the amount
of jobs available would decrease due to not having a degree. The second last step is to take action
on the choice. The final step is to review the decision. We can do this by analyzing the decision
made and figure out whether or not it benefited the company or not.

LESSON 2-2 BASICS OF ECONOMICS

PRICE-SETTING ACTIVITIES

Determining prices involves two main elements– supply and demand. Supply is the relationship
between the amount of a good or service that businesses are willing and able to make available
and the price. On the buyer’s side is demand, which is the relationship between the amount of a
good or service that consumers are willing and able to purchase and the price. In general the
amount of goods or services that people want increases, the price goes higher. The market price is
determined by the point at the intersection between the supply and demand lines.

CHANGING PRICES
A common economic concern is continually rising prices. An increase in the average prices of
goods and services in a country is known as inflation. Inflation allows people to buy fewer goods
and services. When demand exceeds supply, prices go up. This is called demand-pull inflation. It
can occur when a government tries to solve economic problems by printing more money. The
other cause of inflation occurs when the expenses of a business increase, this is called cost-push
inflation. Cost-push inflation results in a higher price charged by a company.

LESSON FEATURE

COMMUNICATION ACROSS BORDERS: DISAPPEARING LANGUAGES

Some language loss is natural and predictable. For a language to remain healthy, it must be passed
on to the next generation. Fewer languages may seem better for business. However, fewer
languages may also mean fewer diverse thoughts. Language diversity reflects the music, history,
literature and culture of a society.

LESSON 2-3 ECONOMIC SYSTEMS

ECONOMIC RESOURCES SATISFY NEEDS

Natural Resources

Also known as land. Resources that are drawn from nature and used with very few modifications.
Some examples of natural resources that businesses use in their business are, land, trees, water,
and minerals. These items are used in the production of goods and services consumed by
individuals, businesses, and governments.

Human Resources
Also known as labor. These resources are the people who work to create goods and services.
While tech has changed or eliminated certain tasks previously performed by people, new types of
work are continually being created.

Capital Resources

Also known as capital. These resources include buildings, money, equipment and factories used
in the production process. These items are expensive and are used over several years by business
organizations.

TYPES OF ECONOMIC SYSTEMS

COMMAND ECONOMIES

A command economy is where the government controls most of what the general population has
in terms of production, investments, prices and incomes. Either the government of a collective
owns the land and means of production. After a decision has been made, planners assigned by the
government work out the amount of goods produced and the quotas for each enterprise.

MARKET ECONOMIES

An economic system in which production of goods and services is determined by supply and
demand. The interactions between consumers and businesses determine what is available and
what the prices of those goods are. The unrestricted competition between privately owned
businesses is what determines the goods in the economy. Private property is the concept that
individuals have the right to buy and sell productive resources and to own business enterprises.
Profit motive is the concept that individuals are inspired by the opportunity to be rewarded. A
free, competitive marketplace is where consumers have the power to use their choices to
determine what is to be produced and to influence the prices to be charged.
MIXED ECONOMIES

Mixed economies are economies that are a blend between government involvement in business
and private ownership. For example, some countries have publicly owned transportation
companies, communication networks, and major industries. The income is used to fund
government activities. Socialism refers to when the most basic industries are owned and operated
by the government with the government controlled by people as a whole. The process of changing
an industry from publicly to privately owned is called privatization.

LESSON FEATURES

GLOBAL BUSINESS SPOTLIGHT: FACTORS OF PRODUCTION FOR FAST-FOOD COMPANIES

McDonald’s and KFC were joined by other fast food franchises in Mexico. Each of
the companies combined money, buildings, and equipment with their food, and hired
local workers to provide meals at their restaurants.

GLOBAL BUSINESS SPOTLIGHT: PUBLIC SERVICES GOING PRIVATE

Many countries have decided to let private companies buy and cooperate with
various government-owned businesses. The Mexican government sold control of the
country’s telephone company, airlines and banks to private companies. This helped
save tax dollars and make businesses more profitable. Privatization was popular
when going from command to market economies.

LESSON 2-4 ACHIEVING ECONOMIC DEVELOPMENT

DEVELOPMENT FACTORS
The three main development factors that reflect the level of economic

development are literacy level, technology and agricultural dependency.

Literacy level is when countries with better education systems usually
provide goods and services that are of higher quality for their citizens.

Technology automates production, distribution and communication

systems which allow companies to create and deliver goods, services and

ideas quickly.

TYPES OF DEVELOPMENT

The level of economic development of a country can be categorized three different ways

INDUSTRIALIZED COUNTRIES

Nations with the greatest economic power are usually those with many large companies. An
industrialized country is a country with strong business activity that is usually the result of
advanced technology and a highly educated population. These countries often have an extremely
developed infrastructure which refers to a nations’ transportation, communication and utility
systems, such as Germany.

LESS-DEVELOPED COUNTRIES
Countries with a very low standard of living are known as less-developed countries. These
countries have very little economic wealth and an emphasis on agriculture or mining. These
countries have an average annual income per person of less than $3,000. In comparison to the
United States average annual income per person of more than $30,000. Some examples of these
countries include Bangladesh, Bulgaria, Chad and Ecuador.

DEVELOPING COUNTRIES

In the middle between Less-developed and industrialized countries are developing countries.
These countries are evolving from less developed to industrialized. There are improving
educational systems, increasing technology and expanding industries. These factors result in an
increasing national income. Some of these countries include Brazil, India and Singapore.

LESSON FEATURE

GLOBAL BUSINESS SPOTLIGHT: TYPES OF INFRASTRUCTURE

Countries have physical and natural infrastructure. Natural infrastructure includes climate,
waterways, farmland and other natural resources. Business activities are also affected by a
nation’s social infrastructure including family relationships, labor unions and the church. Finally
there is managerial or entrepreneurial infrastructure which involves the ability of people to
organize and implement business activities.

LESSON 2-5 RESOURCES SATISFY NEEDS

THE ECONOMICS OF FOREIGN TRADE

Absolute advantage exists when a country can produce a

good or service at a lower cost than other countries. This

situation usually occurs as a result of the natural resources or
raw materials of a country. South American countries have
an absolute advantage in coffee production. Comparative
advantage is when a country would better serve its own
interests by producing a good from another country.

MEASURING ECONOMIC PROGRESS

Similar to sports, international business also keeps “score” by using economic measures to
evaluate and analyze the economic conditions of a country.

MEASURE OF PRODUCTION

One common measure of production is Gross Domestic Product (GDP). This measures the output
of goods that a country produces within its borders. It includes items produced with foreign
resources. The Gross national product (GNP) measures the total value of all goods and services
produced by the resources of a country. GNP is like GDP but also includes production in other
countries using resources of the country whose GNP is being measured.

INTERNATIONAL TRADE ACTIVITY

The balance of trade is the difference between a country’s exports and imports. When a country
exports more than it imports, it has a favorable balance of trade. This is also called a trade
surplus. However if a country imports more than it exports, the nation has an unfavorable balance
of trade, or a trade deficit. The foreign exchange rate is the value of one country’s money in
relation to the value of the money of another country. Foreign debt is the amount a country owes
to other countries. While owing money to others will affect a country in several ways, the largest
effect on the economy is that the nation must use future income to pay for current and past
spending.
OTHER ECONOMIC MEASUREMENTS

One other economic measurement is the consumer price index (CPI). The CPI is a federal
government report published by the Bureau of Labor Statistics. Each month, data is provided on
price levels for various products and services in different regions of the country. A final indicator
of a country’s economic situation is the unemployment note. When people are not earning an
income, they cannot purchase needed goods and services.

LESSON FEATURES

GLOBAL TECHNOLOGY TRENDS: INTERNATIONAL DOMAIN NAMES

The location of a business or another organization on the Internet is defined by

a URL such as www.swep.com. The last section of a URL is the domain name
that indicates the type of organization and the country location. The U.S. has
the most web sites in the world and some common domain names are .com for
commercial organizations, .org for nonprofit organizations and .gov for
government agencies.

INTERNATIONAL BUSINESS PERSPECTIVE: CAREERS: GLOBAL BUSINESS

The United States, Germany and Japan are considered developed countries.
However, they still suffer from many of the issues that plague underdeveloped
countries, such as hunger and homelessness.

CAREERS

The United States celebrates the contributions of African Ameircans.

Woodson’s many contributions to education include serving as supervisor of a
school in the Philippines; serving as a dean at Howard University and West
Virginia State College; and teaching French, Spanish, English and history in the
District of Columbia schools. Dr. Carter G. Woodson made sure everyone
would know about the important role that Africans and African Americans
have played in the history of the United States and the history of the world.

Lesson 2-1
Economics and Decision Making
Activity 1 • Identifying the Steps of the Decision-Making Process Directions:
List the following steps of the decision-making process in the correct order. Then,
provide an example of the use of these steps by a person or a business.

Steps in the Example of the Step

Decision-Making Process

1 Define the Problem A person wants to go to college but also wants to do a

. job but does not have enough time to do both.

2 Identify the Alternatives On one hand, if the person goes to college then they
. will be able to eventually have a stable life. The
person can work on a job but then the salary and
options of the job will be less than if they had a
degree.

3 Evaluate the Alternatives If that person has a stable life, then they can get a job
. with a decently high salary with enough time and they
will be able to have many options with a degree.
However, if they get a job immediately, then that
person will be able to get enough money to
compensate for the time lost in college.

4 Make a Choice That person chooses to go to college due to the

. long-term success of the option in comparison to
getting a job immediately.

5 Take Action on the Choice That person goes to a college, gets a bachelor’s and
. master’s degree.

6 Review the Decision Then that person is able to get a job with the master’s
. degree easier than if they did not have the degree.

Activity 2 • Identifying Alternatives

Directions: For each of the following problems, identify at least three different solutions.

7. You have been accepted at the college of your choice, but between your savings and what your
parents can afford, you do not have enough money for tuition, books, and expenses.
I decided to take a temporary job at a retail shop in order to pay for my tuition, books and other expenses.
I can also decide to ask for financial aid from the college to see if there can be a discount for the tuition,
books and expenses. I can take a loan from a bank to get the money.

8. Your company's new product has been so successful that you need to manufacture more to satisfy
customer wants.
I can offer an increase in payment for the manufacturer to satisfy what the customer wants. I

can move to a different manufacturer who is willing to do more for less. I can build a

manufacturing branch within the company so we don’t have to pay one.

9. Sales of your product have slowed and you need to create new interest in the product to increase sales.

I can create a marketing campaign to try and promote the product and increase sales. I can alter the
product to try and appeal to a target market. I can try and decrease the amount of supply of the product and
try and raise demand by making the product rarer.

10. Your factory assembly line is often stopped because of equipment breakdown and it is beginning to
affect sales.

I can hire a repairman for the equipment so that the factory assembly line works. I can move the factory
assembly line to a different place where the equipment is functional. I can try and replace the equipment
with manual labor until the equipment is fixed.

Lesson 2-2
Basics of Economics
Activity 1 • Graphing Supply and Demand
Directions: Use the supply and demand information in the table below to create a graph of supply and
demand. Label the graph clearly. Then answer the questions that follow.
Price Units Units
Supplied Demanded

$10 100 600

$20 200 500

$30 300 400

$40 400 300

$50 500 200

$60 600 100

1. What is the market price on your graph above?
_____$35_____________________________________________________________________________

2. If the quantities demanded at each price decreased, how would that affect the graph for Demand?
______That would mean that the Demand would increase causing the prices to become higher
____________________________________________________________________________

3. If the quantities demanded at each price decreased by 100, what would be the new market price? (Hint:
Draw a new Demand line on your graph.)

The new market price would be $30

Lesson 2-3
Economic Systems
Activity 1 • Identifying Factors of Production
Directions: List the factors of production that would be needed to produce the following items.
1. Hamburger and fries
Natural resources: potatoes for fries, wheat for bread, lettuce and tomatoes from a farm, an pig for the
pork

Human resources: A person would be needed to grow and shop the fruits and vegetables. A person is
needed to raise and kill the pig. A person is needed to raise and harvest the wheat. Finally a person is
needed to put all of the ingredients together for the fries and hamburger

Capital: A toaster is needed to toast the bread and the ham, a machine is needed to process the wheat into
bread, a freezer is needed to preserve the ingredients, a tractor is needed to cultivate the wheat.

2. School
Natural resources: Lead, wood and rubber to build a pencil. Cotton, nylon and other synthetic materials
are needed to build a backpack. Brass, steel or tungsten is needed to build a pen. Plastic or paper is
needed to build a folder and water bottle.

Human resources: A person is needed to smelt the lead, chop the wood for a pencil. A person is needed
to shear the sheep for cotton for the backpack. A person is needed to mine, smelt and put the brass, steel
or tungsten to build a pen. Finally a person is needed to control the machine to make paper and plastic.

Capital: A furnace to smelt the lead, an ax to chop the wood for a pencil. A shear is needed to strip the
sheep for cotton. A pickaxe is needed to mine the brass, steel or tungsten and a furnace is needed to melt
the brass, steel or tungsten. A fourdrinier machine needed to make paper and a plastic injection molding
machine to make plastic.

3. Computer and software

Natural resources: There are over 30 different minerals needed to make a computer but some of
them include, silica, iron, aluminum, copper, lead, zinc, nickel, tin, selenium, manganese, arsenic,
and cadmium.

Human resources: A manufacturer is needed to mine and process the minerals in order to
ship them and build the parts of the computer. Another manufacturer is needed to actually
build the parts of the computer and another person to build the computer itself with those
parts. Finally a distributor to sell the computer to an audience.

Capital: A furnace and pickaxe needed to process the minerals. Most of the parts that are
made by a manufacturer including a Central Processing Unit (CPU), a CPU cooler, a
motherboard, a Graphics Processing Unit (GPU), and storage are capital that are needed to
actually use a computer in the first place.

Activity 2 • Analyzing Economic Systems

Directions: Place a check mark in the appropriate column(s) to tell if the situation is characteristic of a
command economy, a market economy, or a mixed economy.
Command Mixed Market
Economy Economy Economy

4. Consumers have freedom of choice in the ✓

marketplace.
 5. Blends government involvement and private ✓
consumer choice.

6. Central planning committee makes most ✓

economic decisions.

7. Factors of production are owned by individuals and ✓

private companies.

8. Most basic industries are owned and operated ✓

by the government.

9. Individuals have the chance to be rewarded for ✓

risk taking.

10. An economy that is also referred to as socialism. ✓

11. Government selects who gets what job. ✓

Lesson 2-4 Achieving Economic Development (Activity TBD - or skip)

Lesson 2-5
Resources Satisfy Needs
Activity 1 • Calculating International Economic Data
Directions: Answer each of the following questions. Show your calculations.

1. The GNP of a country is $204 billion, and the country has a population of 24 million people. What is
the per capita GNP?
($204,000,000,000/24,000,000) = money outputted/general population = $8,500 per capita GNP
2. Estimate (do not perform an exact calculation) the per capita GNP of a country with $617 billion GDP
and a population of 300 million people.

About $(6,170/3) per capita GNP of that country.

3. If a country has $45 billion in exports for a year and $42 billion in imports, what is the balance of
trade? Is it favorable or unfavorable?
The balance of trade is favorable because the country has $3 billion more in exports than imports
meaning it is contributing more to the world economy than the world is to the country.

4. If the country in Question #3 expects a 25% increase in imports and a 10% increase in exports next
year. What will be the expected balance of trade next year? Is it favorable or unfavorable?

The expected balance of trade next year will be unfavorable because the total amount of imports is $52.5
billion while the total amount of exports is $49.5 billion.

5. A country has a foreign debt of $450 million. In the current year, the country imports $375 million of
goods and services and exports $367 million. What is the country's new foreign debt?

Imports increase debt, exports decrease debt. ($375 million-$367 million)=$8 million in imports. ($450
million + $8 million) = $458 million is the new foreign debt.

6. A country of 1.5 million people has an unemployment rate of 11.2%. How many people are
unemployed?

(1.5 million * .112) = 168,000 people are unemployed