International Business:

Our Global Economy

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Scarcity – Refers to the limited resources available to

satisfy the unlimited needs of people

Economics – The study of how people choose to use

limited resources to satisfy their unlimited needs and wants

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6 StepsDefine the problem Identify the alternativesEvaluate the alternativesMake a choiceTake action on the choiceReview the decision

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Price is one of the most economic factors you encounter every day. The amount paid for goods and services results from economic decisions made by consumers, businesses, and governments.

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Supply – the relationship between the amount of a good or service that businesses are willing and able to make available and the price.

Demand – (the buyers side) the relationship between the amount of a good or service that consumers are willing and able to purchase and the price.

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Market Price – the point at which supply and demand cross

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Inflation – an increase in the average prices of goods and services in a country

To start a company that makes a product requires several elements. These elements are called factors of production

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Natural Resources (Land) Human Resources (Labor) Capital Resources (Capital - $)

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Command – government or central planning committee regulates amount, distribution, and price

Market – individual companies and consumers make decisions about what, how and for whom items will be produced

Mixed – where the economies are blended between government involvement in business and private ownership

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Command EconomyGovernment regulates

Government can even regulate what job you have

Market EconomyCompanies and consumers make decisions

Private Property, Profit Motive, Free Marketplace

Mixed EconomySome government involvement ex. France

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Exists when a country can produce a good or service at a lower cost than another country

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Exists when a country specializes in the production of a good or service at which it is relatively more efficient

For example, if, using machinery, a worker in one country can produce both shoes and shirts at 6 per hour, and a worker in a country with less machinery can produce either 2 shoes or 4 shirts in an hour, each country can gain from trade because their internal trade-offs between shoes and shirts are different. The less-efficient country has a comparative advantage in shirts, so it finds it more efficient to produce shirts and trade them to the more-efficient country for shoes.

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GDP (Gross Domestic Product)Measures output of goods that a country

produces within it’s borders

GNP (Gross National Product)Measures the total value of all goods and

services produced by the resources of a country

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Balance of TradeDifference between a country’s exports and

imports

Foreign DebtAmount a country owes to other countries

Consumer Price Index (CPI) Federal Government report that shows price

levels of products & services in different regions of a country

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Literacy Level – countries with better education systems usually provide more goods and services that are of higher quality for their citizens

Technology – automated production, distribution, and communication systems quickly allow companies to create and deliver goods, services, and ideas quickly

Agricultural dependency – an economy that is involved in agriculture does not have manufacturing base for high quality products

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Industrialized Country – strong business activity, technology and educated population

Infrastructure – refers to nation’s transportation, communications, and utilities

Less-Developed Country – little economic wealth and focus on agriculture and mining

Developing Country – moving towards industrialization

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Emerging Markets – Places where consumer incomes and buying power are increasing because of economic expansion

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Gross Domestic Product (GDP)Measures the output of goods that country

produces within its borders Gross National Product (GNP)

Measures the total value of all goods and services produced by resources of a country *It’s like GDP except the goods could be made in

other countries but using resources from your country

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Balance of trade – difference between a country’s exports and imports Example – if a country imports more than it

exports, it is an unfavorable balance of trade also known as a TRADE DEFICIT

Foreign Exchange Rate – value of country’s money to another country

Foreign Debt – amount a country owes to other countries

CPI – Consumer Price Index is a federal govt. report published by Bureau of Labor

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