Ch4 Flashcards
Economics
Study of how a society uses scarce resources to produce and distribute services and goods. It is the study of choices, what the people, firms, or nation among the limited resources that are available to them.
Major differentiator among economic systems
How to allocate limited resources, what goods and services to produce and in what quantities, how and by whom these goods and services are produced, how to distribute goods and services to consumers.
Capitalism
Based on competition in the market and private ownership of the -resources -factors of production.
Communism
Opposite of capitalism
Socialism
Economic system in which basic industries are owned by the government or by the private sector under strong government control.
mixed economic systems
pure capitalism and communism. the real world falls somewhere in-between the two. canada, Sweden, and UK.
macroeconomics
vs
microeconomics
macro is the study of the overall economy.
micro focuses on the individual parts of the economy such as households and firms.
three main macroeconomics goals
economic growth, full employment, and price stability.
gross domestic product (GDP)
total market value of all final value of all final goods and services produced within a nations borders each year.
business cycle
showing how economic activity is constantly changing. upward and downward changes.
expansion period
when the economy grows over a period of time
peak
very top of the expansion cycle
recession
when the economy will begin to contract and declines for two consecutive quarters
depression
if the decline becomes severe
what do u do when unemployment is low
compete for employers and pay higher wages or accept low skilled workers
inflation
average of all prices of goods and services is rising
Two functions of purchasing power
inflation and income
how is inflation measured
looking at changes in the consumer price index
consumer price index (CPI)
an index of prices “market basket” of goods and services purchased by typical urban consumers
impact of inflation
negative effects on people’s business. inflation penalizes people who live on fixed incomes. inflation hurts savers. as price rises the real value of a product goes down.
monetary policy
government programs for controlling the amount of money circulating in the economy and interest rates.
fiscal policy
the program of taxation and spending. by cutting taxes or by increasing spending the government can stimulate the economy. the more government buys from businesses the greater the business revenues and output.
PESTEL model
used to analyze the impact of external factors on a business External factors may include: - political - economic - social - technological - environmental - legal
political influences
political climate of a country is critical for day to day business operations. government activity, laws passed. and general political stability of a government.
economic influences
most important on external environment. demand and supply and how the economy is effecting a businesses level of outputs of products.
social factors
attitudes, values, ethics, and lifestyle influence what, how, where and when people can purchase products and services.
demographic factors
uncontrollable factor in the business environment. eg. age, gender, race.
technology
application of science and engineering skills to solve production and organizational problems. make sure u consider the availability of the product.
environmental influences
geographical location, availability of raw materials, pollution, greenhouse gas emission and associated legislation.
legal influences
focusing on individual laws and hiring a legal counsel to help start up the business and make sure your on the right track
global vision
recognizing and reacting to international business opportunities, being aware of foreign competitors in all markets, and effectively using international distribution networks to obtain raw materials and move finished product to customers.
export
goods and services made in one country and sold to others
imports
goods and services that are bought from other countries.
balance of trade
Difference between the value of a company’s exports and the value of a company’s imports during a specific time period
Trade surplus: when a company’s exports exceed its imports
Trade deficit: when a company’s imports exceed its exports.
When imports exceed exports more money flows out of the country than into the country which is not what we want !!
balance of payments
summary of a country’s international financial transactions showing the difference between the country’s total payments and its total receipts from other countries
absolute advantage
when a country can produce and sell a product at a lower cost than any other country or when it’s the only country that can produce that product.
comparative advantage
each country should specialize in the products it can produce more readily and cheaply and trade those products for goods that other country’s can produce more readily and cheaply.
negatives of global trade
- jobs lost due to imports or production shifting abroad. many workers can find new jobs, but those jobs pay less
- fear of losing your job, especially at companies operating under competitive pressure
- employers often threaten to export jobs if workers do not accept pay cuts
- service and white collar jobs are increasingly vulnerable to operators moving offshore
outsourcing
sending domestic jobs to another country
benefits of globalization
- created jobs and wealth
- productivity grows more quickly when countries produce goods and services they have a comparative advantage in.
- living standards can increase faster
Types of natural barriers
physical or cultural.
tariff barriers
tax imposed by a nation on imported goods
non tariff barriers
quota: limits on the quantity of a certain good that can be imported
embargo: complete ban against importing or exporting a product
dumping
practice of charging a lower price for a product in foreign markets than in the firms home market.
world trade organization (WTO)
most powerful institution for reducing trade barriers and opening markets
Why do banks play a role in the international marketplace
Spans the globe with money routinely flowing across international borders. They provide loans to foreign governments and businesses.
International economic communities
Nations that frequently trade with each other may decide to formalize their relationship. The governments meet and work out agreements for a common economic policy. The result is an economic community or, in other cases, a bilateral trade agreement (an agreement between two countries to lower trade barriers).
Why do country’s enter global marketplace
Earn additional profits.
Licensing and franchising
Licensing: Legal process whereby a firm agrees to let another firm use a manufacturing process, trademark, patent, trade secret, or other proprietary knowledge
Franchising: form of licensing that has grown rapidly in recent years.
Contract manufacturing
Foreign firm manufactures private label goods under a domestic forms brand. Allows a company to test its water in the foreign company
Joint ventures
Domestic firm buys part of a foreign company of joins with a foreign company to create a new entity. Quick and inexpensive way to enter the global marketplace.
Direct foreign investment
Active ownership of a foreign company or of overseas manufacturing or marketing facilities.
Countertrade
Part or all of the payment for goods or services is in the form of other goods or services. Is a form of barter
