Economics and the Middle East October 21 th to25th
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Standard Middle East: SS7E5 The student will analyze different
economic systems. a. Compare how traditional, command, and market
economies answer the economic questions of (1) what to produce, (2)
how to produce, and (3) for whom to produce.
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Command Economy Command Economy: In a command economy, the
central authority (government) is in charge and makes all economic
decisions. The most important aspect of this type of economy is
that all major decisions related to the production, distribution,
commodity and service prices, are all made by the government or
central authority.
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Command Economy What to produce Whatever the government says to
produce How to produce However the government tells you to produce
For whom to produce For whomever the government tells you to
produce (ideally the entire society)
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Market Economy Market Economy: In a market economy, consumers
are in charge and make economic decisions by spending money on
goods and services they need/want. In a market economy, national
and state governments play a minor role. Consumers and their buying
decisions drive the economy. The assumptions of the market play a
major role in deciding the right path for a countrys economic
development.
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Market Economy What to produce Whatever consumers say to
produce How to produce However the consumers tell you to produce
For whom to produce For whomever the consumers tell you to
produce
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Traditional Economy Traditional Economy: In a traditional
economy, things are done as they have been done in the past
(traditionally). The economic system in which resources are
allocated by inheritance, and which has a strong social network and
is based on primitive methods and tools. It is strongly connected
to subsistence farming.
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Traditional Economy What to produce Whatever ritual, habit or
custom dictates How to produce However ritual, habit or custom
dictate For whom to produce For whomever ritual, habit or custom
dictate
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Standard SS7E5 The student will analyze different economic
systems. b. Explain how most countries have a mixed economy located
on a continuum between pure market and pure command. Since no
country has a pure command or pure market economic system, most
economies combine aspects of both of these pure economic systems,
albeit to different degrees. Real economies fall somewhere between
the two extremes.
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ECONOMY Since no country has a pure command or pure market
economic system, most economies combine aspects of both of these
pure economic systems, albeit to different degrees. Real economies
fall somewhere between the two extremes.
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What is a mixed economy? What is a mixed economy? A mixed
economy blends components of two or more of the following economic
systems to varying degrees: traditional, market, and command
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Mixed Economy Most countries have a Mixed Economy. However, a
Mixed Economy is not an economic system but rather a blending of
two different types of systems.
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STANDARD SS7E5 The student will analyze different economic
systems. c. Compare and contrast the economic systems in Israel,
Saudi Arabia, and Turkey.
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ISRAEL (1) What to produce? A large portion of Israels GDP
comes from high tech manufacturing, financial services, and
agriculture. (2) How to produce? Israel has substantial government
ownership of business, but is gradually privatizing companies. (3)
For whom to produce? The private sector produces goods and services
for domestic and international markets based on the market price
system.
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Place on the continuum: Israel would fall slightly to the
market side of center on the continuum (you do NOT need to memorize
the exact number)
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Saudi Arabia (1) What to produce? Saudi Arabia is the worlds
leading producer of oil. The Saudi government continues to invest
in industrial production. They are a leader in petrochemicals,
mining, and refining. (2) How to produce? Over 95% of the oil
industry in the country is operated by the government. Most other
major industries have significant government involvement. Saudi
Arabia relies heavily on specialized labor from other countries.
Estimates are that a third of the labor force falls in this
category. Since the 1980s, the Saudi government has been trying to
increase private ownership of business and encourage more joint
ventures with private foreign companies. (3) For whom to produce?
One third of Saudi Arabias GDP is based on exports to other
countries. (This is due to the economys reliance on the oil
sector.)
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SAUDI ARABIA Since the 1980s, the Saudi government has been
trying to increase private ownership of business and encourage more
joint ventures with private foreign companies. (3) For whom to
produce? One third of Saudi Arabias GDP is based on exports to
other countries. (This is due to the economys reliance on the oil
sector.)
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Place on the continuum: Saudi Arabia would fall to the command
side of center on the continuum.
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Turkey (1) What to produce? Turkey has a diversified economy
with large service, manufacturing, and agricultural sectors. (2)
How to produce? Since the late 1980s, Turkey has gradually moved
from a government directed economy to more private enterprise. (3)
For whom to produce? One fifth of Turkeys production is exported.
The remainder is consumed by domestic consumers and the
government
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Place on the continuum: Turkey would fall to the left of Saudi
Arabia and Israel on the market side of the continuum.
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STANDARD SS7E6 The student will explain how voluntary trade
benefits buyers and sellers in Southwest Asia (Middle East). a.
Explain how specialization encourages trade between countries.
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Do what you do best; trade for the rest. Specialization -
Specialization occurs when one nation can produce a good or service
at a lower opportunity cost than another nation. Specialization
encourages trade and can be a positive factor in a countrys
economy. For example, if a country specializes in oil, they can
trade oil for a certain food that another country specializes in so
that both countries benefit. iy
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Over-Specialization Over-Specialization Examples of
over-specialization include one-crop economies and generally having
a lack of diversification. This can negatively impact a regions
economy. What if a country over-specializes in oil and then runs
out of oil? What if a country over-specializes in corn and then a
scientific study comes out that says corn causes cancer? If
something happens to the one crop or resource a country relies on
then the countrys entire economy could potentially collapse.
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STANDARD SS7E6 The student will explain how voluntary trade
benefits buyers and sellers in Southwest Asia (Middle East). b.
Compare and contrast different types of trade barriers, such as
tariffs, quotas, and embargos.
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Tariff A tariff is a tax placed on goods that one nation
imports from another. Many nations use tariffs to protect their
industries from foreign competition. Tariffs provide protection by
acting to raise the price of imported goods. Thus, tariffs
encourage domestic firms to increase their production, and
consumers are forced to pay higher prices for the protected goods.
Can you think of an example?
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Quota A quota sets a limit on the amount of certain goods that
can be imported into a country. Import quotas offer another means
of protectionism. quotas tend to be more effective than protective
tariffs, which do not always stop consumers who are willing to pay
a higher price for an imported good. Can you think of an example?
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Embargo An embargo is an order designed to stop the movement of
goods. An embargo, issued by the government of one country, may
restrict or suspend trade between that country and another nation.
A government may impose an embargo to hamper (make progress
difficult) the military efforts of another government. Sometimes a
government imposes an embargo to express its disapproval of actions
taken by another government. The embargo is intended to pressure
the offending government to change its actions. Can you think of an
example? __________________________________________________
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Import quotas Import quotas offer another means of
protectionism. These quotas set a limit on the amount of certain
goods that can be imported into a country and tend to be more
effective than protective tariffs, which do not always stop
consumers who are willing to pay a higher price for an imported
good.
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Barriers to Trade A tariff is a tax placed on goods that one
nation imports from another. Many nations use tariffs to protect
their industries from foreign competition. Tariffs provide
protection by acting to raise the price of imported goods. Thus,
tariffs encourage domestic firms to increase their production, and
consumers are forced to pay higher prices for the protected
goods.
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STANDARD SS7E6 The student will explain how voluntary trade
benefits buyers and sellers in Southwest Asia (Middle East). c.
Explain the primary function of the Organization of Petroleum
Exporting Countries (OPEC).
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OPEC OPEC OPEC stands for the Organization of Petroleum
Exporting Countries. The role of this organization is to influence
the price of oil on world markets. If OPEC wants the price of oil
to increase on world markets, they will slow production of oil. If
OPEC wants the price of oil to decrease on world markets, they will
increase production of oil.
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OPEC You do not need to know all of the members of OPEC however
you do need to know that not all oil producing nations are OPEC
members, nor are all OPEC members Middle Eastern countries.
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STANDARD SS7E6 The student will explain how voluntary trade
benefits buyers and sellers in Southwest Asia (Middle East). d.
Explain why international trade requires a system for exchanging
currencies between nations.
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EXCHANGE RATES Exchange Rates - exchange rates provide a
procedure for determining the value of one countrys currency in
terms of another countrys currency. Without a system for exchanging
currencies, it would be very difficult to conduct international
trade. Before people from different countries can buy or sell
anything to each other, they have to solve a basic problem. Buyers
have to be able to change their money from their country's currency
to the seller's national currency. This is called "foreign
exchange."
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EXCHANGE RATES CONT. Each currency, whether it's the US dollar
or the Haitian gourde, has a value in terms of other currencies.
This is the "exchange rate." Without a reliable supply of foreign
exchange in each country, and without relatively stable exchange
rates, world trade would drop drastically.
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STANDARD SS7E7 The student will describe factors that influence
economic growth and examine their presence or absence in Israel,
Saudi Arabia, and Iran.
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What influences economic growth? There are four factors that
most influence economic growth in a nation. These are: Land - Land
provides the basic raw materials--vegetation, animals, minerals,
fossil fuels--that are inputs into the production of goods (natural
resources). Labor - Labor is the resource that does the "hands on"
work of transforming raw materials into goods. Capital (2 kinds;
human and physical defined below) Entrepreneurship defined
below