The Four Great ?

’s of Economics
1) what goods and services and how much of each
to produce

2) how to produce these goods

3) for whom to produce these products

4) who owns and controls the factors of

production
 Market vs. Command
Economies
Market Economy Command Economy
Example – USA Example - USSR
Ownership of Property & Ownership of Property &
Resources? Resources?
Individual Government owned
Type of Government Type of Government
Democracy Communist/ Dictatorship
Type of Planning: indirect Type of Planning: Central
How are careers chosen? How are careers chosen?
Individual choice Government decides
 Mixed Economies
Combines private and public enterprise

Ex.
Bulgaria and Hungary
What type of Economy experiences
Economic Scarcity???

Market and Mixed

Economies
 Chapter 6
The US in the Global Economy
Who participates in World Trade?
EVERYONE!
Wool from Australia Maple Syrup from Canada Vodka from Russia

EVERYTHING FROM CHINA!

 What Companies participate in World
Trade?
• Multinational Corporations are corporate organizations that
own or control production of goods or services in one or more
countries other than their home country
• They are typically a large corporation incorporated in one
country that produces or sells goods or services in various
countries.

IKEA is incorporated in the Sweden, but has stores world wide.

 Things Exported & Imported
• G / S (Trade Flows)

• Capital & Labor (Resource Flows)

• Information & Technology Flows

• Financial Flows
4 Things That Lead to Rapid Trade Growth
• Improved transportation technology
Railroads and Trains
Cars
Highways
Planes and Jets
• Improved Computers
Internet
Cell Phones
Social Media
Online Market Places
4 Things That Lead to Rapid Trade Growth
• General Decline in Tariffs & Import Quotas
– Tariff: A tax imposed on imported goods and services
– Quota: a government-imposed trade restriction that limits the
number, or monetary value, of goods that can be imported or
exported during a particular time period
– Higher tariffs restrict trade because they increase the price of
imported goods and services, making them more expensive to
consumers. Lower tariffs would make it easier for foreign companies
to join the market in other countries and it would reduce the amount
that consumers need to pay.
– Since quotas limit the number of product being imported from foreign
countries, the prices of those goods will increase and there will be less
choices for the consumer to make. Declines in quotas will not only
lower prices for the consumer, it will also provide them with more
options than the domestic product alone.

• Peaceful relations among nations

 Benefit of Free Trade
Comparative advantage is the ability to produce
a specific product more efficiently than any
other product, for the lowest opportunity
cost.
Ex. The United States has long specialized in the
production of wheat. The US can produce
wheat (55.4 million metric tons per year)
more efficiently than other countries such as
Serbia (2.4 million metric tons per year)
causing the US to have a lower opportunity
cost. Thus, giving the US a comparative
advantage.
 Trade Agreements &
Free Trade Zones
• GATT:
- a multilateral agreement regulating international trade, its
purpose was to substantially reduce tariffs and other trade
barriers and to eliminate preferences.
- GATT was signed in 1947 and took effect January 1, 1948 and
they
had 23 nations that signed.
- GATT has since been changed to the WTO (World Trade
Organization since January 1, 1995 and they have 123 nations
signed.

Three Principles:
1. Each contracting party is required to
treat all contracting parties in the same
way as it treats its “most-favoured nation.
2. Principles of Rights and Obligations
3. Eliminate Import Quotas
 World Trade Organization
• Founded on January 1, 1995
• 123 initial nations
• Now have 164 nations
• Iran wants to enter WTO after they signed on a
nuclear deal with six world powers
• WTO goal is to help producers of goods and
services, exporters, and importers conduct their
business
• WTO’s big difference with GATT is that GATT was
trying to establish rules and agreements without an
institutional foundation with an ad hoc secretariat,
and the WTO is a permanent institute with its own
secretariat.
The
Austria Belgium Cyprus Czech Denmark
European Republic

Union: Estonia Finland France Germany Greece

25
members Hungary Ireland Italy Latvia Lithuania

Luxembou Malta Poland Portugal Slovakia

rg

Slovenia Spain Sweden The United

Netherland Kingdom
 The European Union
• Common quota applies to the import of goods across the external
borders of the EU
• Tariff policies are a tax on imported goods and services
• Common Currency 12/25 : The European Union’s common
currency is the euro
• Common Agriculture Policy was formed to implement a system of
agriculture subsidies after WWII
• Transportation Policies was formed to open up transport markets
& to help the EU achieve its climate goals to reduce greenhouse
gas emissions
• Eliminate Quotas & Tariffs among members is the initiative to
eliminate quotas in all textile and clothing trade between nations
• Free movement labor is a treaty made to allow EU citizens to look
for a job in another EU country without needing a permit, reside
there for that purpose, stay til the employement is over & equal
treatment.
North American Free Trade Agreement
(NAFTA)
NAFTA took effect January 1, 1994
NAFTA is a treaty entered in by the U.S.,
Canada, and Mexico. It was created to
build strong economic growth and rising
prosperity for these nations.
 Who is the United States most
important trading partner in terms of
dollar trade volume???
• Canada
• Trade is vital to both nations successes
because each country is one of the largest
trade partners of the other.
Economic Growth
 Economic Growth
An increase in the amount of goods
and services produced per head of
the population over a period of time
 Determinants of Economic Growth

1. Land
2. Labor
3. Capital
4. Technological Advance
• Technological Advance is the
largest contribution to the
growth of labor productivity in
the US
• It has allowed for better
productivity rates which has
resulted in a better standard of
living nationwide
 Detriments to Economic Growth
1. Discrimination
2. Worker Safety
3. Environmental Concerns
4. Government Regulation
5. Political and/or Economic Instability
6. Dishonesty and/or Crime
 About how much has real per
capita GDP in the US grown by
each year since 1948?
Average growth was relatively high from 1948 to 1973
and relatively low from 1974 to 1995. It was high again
from 1995 to 2000, and depending on the measure did or
did not return to a slow growth period from 2001 to
2007. Then, since 2008, growth has been markedly lower
than in any other period since 1948.

Source: Congressional Research Service, Slow Growth in

the Current U.S. Economic Expansion
 The “Invisible Hand”
• A term which is used to explain the
unintended social benefits of
individual actions
• Explained by Adam Smith in his
1776 book called, “An Inquiry into
the Nature and Causes of the
Wealth of Nations”