Economic Factors

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Chapter 9: Political and Economic Factors Affecting International Business
9.3 Economic Factors Related to International Business
Page 284 – 292 Economic Systems An economic system is what allows a country to decide what to produce, how to produce, and for whom to produce. These systems include natural resources, labor, capital, management and standards for creating products. Market Economies In market economies, i) ownership of private property is encouraged, ii) businesses are encouraged to produce better products, iii) competition is encouraged because it can create better quality and lower prices, iv) the Government has little direct involvement with the business itself, and v) selfsufficiency is not seen as an economic goal. Supply and demand control market economies. The “law” of supply states that as the price of a product increases, producers will be willing to make more of that product. The “law” of demand states that as the price of a product increases consumers will demand less of that product. Producers must find the equilibrium point which is the point at which the consumers are willing to pay the asking price and the company still makes a profit. Centrally Planned Economies In centrally planned economies the government controls the ownership of private property. By having more government control the profit motive is not the main goal of the business. There are fewer pure centrally planned economies following the collapse of communism in the former Soviet Union. Mixed Economies A mixed economy includes government involvement and private ownership of businesses. In some countries, the government owns the transportation and communication businesses. In socialist mixed economies, most of the main industries are government controlled, but citizens are free to work in other industries. Canada has a mixed economy. Because Canada has a large, land mass and a relatively small population, the Canadian government has to play a major role in our important...
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