Module 3 - Political and Economic Systems PDF

MODULE 3 POLITICAL AND ECONOMIC SYSTEMS https://image.slidesharecdn.com/politicalsystems-141016132339-conversion-gate01/95/political-systems-1- 638.jpg?cb=1413465963 https://i.ytimg.com/vi/sHkviUk_47k/hqdefault.jpg INTLBT – International Business and Trade...

MODULE 3 POLITICAL AND ECONOMIC SYSTEMS https://image.slidesharecdn.com/politicalsystems-141016132339-conversion-gate01/95/political-systems-1- 638.jpg?cb=1413465963 https://i.ytimg.com/vi/sHkviUk_47k/hqdefault.jpg INTLBT – International Business and Trade 39 | P a g e LEARNING OBJECTIVES At the end of this module, the students are expected to: 1. discuss the advantages and disadvantages of the different economic systems; 2. distinguish between the different types of political systems; and 3. understand government-business trade relations and how political and economic factors affect international business. INTRODUCTION In this module, we will explore the different economic and political systems and how they affect and/or impact international business and trade. https://th.bing.com/th/id/OIP.j3IvzBbjjXlUr6Vcf4iJ8gHaEK?pid=ImgDet&rs=1 https://th.bing.com/th/id/OIP.beifQR7inbSur5g8sTtAygHaDx?pid=ImgDet&rs=1 I. TARGETED COURSE LEARNING OUTCOME CLO2. Describe the managerial skills required to deal with sociocultural, natural, economic, labor and political forces that influence the success of any international business. II. ASSESSMENT 1. Assignments 2. Performance Task Assessment III. TEACHING-LEARNING ACTIVITIES ENGAGE – Misconception Check ASSIGNMENT #1: Answer the following questions according to what you have previously learned. An activity sheet is provided at the end of the module. Submit next meeting. (30pts) 1. What is a system? 2. What is an economic system? A political system? 3. What are the different economic systems? political systems? EXPLORE – Video Watch Instruction: Watch the following videos on political and economic systems. 40 | P a g e VIDEO: ECONOMIC SYSTEMS Watch this video online: https://youtu.be/d8ivuSUfTg4 VIDEO: POLITICAL SYSTEMS https://www.youtube.com/watch?v=xDJyN31IdAc Guide questions for the videos: 1. What are the characteristics of each economic system? 2. Differentiate each economic system from the others. 3. What are the characteristics of each political system? 4. Differentiate each political system from the others. EXPLAIN – READINGS ECONOMIC SYSTEMS Definitions: An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within a society or a given geographic area. (en.wikipedia.org/wiki/Economic_system) An economic system is an organized way a country allocates resources and distributes goods and services across the whole nation or a given geographic area. (Market Business News) The system of production and distribution and consumption. (freedictionary.com) In a society, the economic system answers five fundamental questions: What do we produce? How much do we produce? How do we produce it? For whom do we produce it? How can production grow? In the modern world today, there is a range of economic systems, from market economies to planned (or command) economies, to traditional economies. Market Economic System A market economic system (also known as a market economy or capitalism) relies on free markets and does not allow government involvement. In this system, the government does not control any resources or other relevant economic segments. Instead, the people regulate the entire system, and resources are allocated based on the law of supply and demand. Therefore, this system is sometimes called laissez-faire capitalism or capitalist economy. The market economic system is a theoretical concept. That means there is no real example of a pure market economy in the real world. This is because all capitalist economies we know of show characteristics of at least some kind of government intervention, no matter how market- oriented they are. For example, many governments pass laws to regulate monopolies or ensure 41 | P a g e fair trade, social equality, etc. The closest to a pure market economy is Hong Kong. Examples of market economies include Singapore, New Zealand, the United States, and the Philippines. A free market enables an economy to experience high growth rates. Arguably the highest among all four economic systems. In addition to that, capitalism also ensures that the economy and the government remain separate. At the same time, however, a capitalist system allows private actors to become extremely powerful, especially those who own valuable resources, which can cause social inequalities. In other words, the distribution of wealth and other positive aspects of the high economic output of a capitalist economy may not always be beneficial for society as a whole long-term. In addition, price controls are an example of a market that is not free. When government intervenes, the market outcomes will differ from those in a free and competitive market model. Market outcomes will also vary when markets are less than perfectly competitive (e.g., monopolistic). https://th.bing.com/th/id/OIP.0eHQU2e-WQ5uomuHggQmLwHaHw?pid=ImgDet&rs=1 https://www.pngitem.com/pimgs/m/527-5270252_market-place-market-clip-art-hd-png-download.png Command Economic System A command economic system is characterized by a dominant centralized power (usually the government) that controls a large part of all economic activity. The government owns 42 | P a g e resources and businesses. The government decides what goods and services will be produced and what prices will be charged. The government chooses the production methods and how much workers will be paid. Some necessities like health care and education are free as long as the state determines your need. Currently, North Korea and Cuba have command economies. This type of economy is commonly found in countries with a socialist or communist political system. It is sometimes also referred to as a planned economic system because most production decisions are made by the government (i.e., planned), and there is no free market at play. Command economies operate very differently. In a command economy, economic effort is devoted to goals passed down from a ruler or ruling class. Ancient Egypt was a good example: A large part of economic life was devoted to building pyramids for the pharaohs. Medieval manor life is another example: The lord provided the land for growing crops and protection in the event of war. In return, vassals provided labor and soldiers to do the lord’s bidding. Economies with access to large amounts of valuable resources are especially likely to establish a command economy. In those cases, the government regulates the resources and most surrounding processes (e.g., distribution). In practice, centralized control usually only covers the most valuable resources within the economy (e.g., oil, gold). Other parts, such as agriculture, are often left to be regulated by the general population and other parts of society. A command economy can work well in theory as long as the government uses its power in the best interest of society. However, this is, unfortunately, not always the case. In addition to that, command economies are less flexible than the other systems and react slower to changes because of their centralized nature. https://th.bing.com/th/id/R.47ac0740080696da6088aa5eecc25d67?rik=YlFi0gR2%2fa1nRQ&riu=http%3a%2f%2fwww.avalankids.com.au%2fassets%2falt_2%2fLBT032.jpg%3f1555231455& ehk=isNjzNjhYJ4gMepfRxSkr%2b30Q41Gvu3EdD7YRckZUh0%3d&risl=&pid=ImgRaw&r=0 https://i.ytimg.com/vi/hc2wXdmXKrs/maxresdefault.jpg Traditional Economic System A traditional economy is an economic system in which traditions, customs, and beliefs help shape the goods and services the economy produces, as well as the rule and manner of 43 | P a g e their distribution. Countries that use this type of economic system are often rural and farm- based. Societies with traditional economies depend on agriculture, fishing, hunting, gathering, or some combination of them. It relies heavily on individuals and doesn’t usually show a significant degree of specialization and division of labor. Also known as a subsistence economy, a traditional economy is defined by bartering and trading. A little surplus is produced and if any excess goods are made, they are typically given to a ruling authority or landowner. Large parts of the world still qualify as traditional economies, primarily rural areas of second- or third-world countries, where most economic activity revolves around farming and other traditional activities. These societies often suffer from a lack of resources. Either because those resources don’t naturally occur in the region or because other, more powerful (often capitalist) economies restrict access to them. Hence, traditional economies are usually not capable of generating the same amount of output or surplus that other types of economic systems can produce. However, the relatively primitive processes are often much more sustainable, and the low output results in much less waste than we see in any command, market, or mixed economy. https://www.marketing91.com/wp-content/uploads/2017/08/Types-Of-Economic-Systems-2.jpg https://th.bing.com/th/id/R.43423ac34d7d2d48a24d0f0925f5528b?rik=ieT2GbhIS8UQ8w&riu=http%3a%2f%2fwww.nobleslawfirm.com%2fwp- content%2fuploads%2f2016%2f05%2fbartering.jpg&ehk=TF6Jmu7NkiVtj68WvK%2fCL7tqSxQIT4lTQwgyeRRtU3Q%3d&risl=&pid=ImgRaw&r=0 Mixed Economic System A mixed economic system refers to any mixture of a market economy and a command economic system. It is sometimes also referred to as a dual or mixed economy. Although there is no clear-cut definition of a mixed economic system, in most cases, the term is used to describe free market economies with strong regulation and government control in specific areas (e.g., public goods and services). Most western economies nowadays are considered mixed economies (e.g., the U.S. economy). Most industries in those systems are privately owned, whereas a small number of public utilities and services remain state-owned. Thus, neither the private nor the government sector alone can maintain the economy; both play a critical part in the success of the system. Mixed economies are widely considered an economic ideal nowadays. In theory, they are supposed to combine the advantages of both command and market economic systems. In practice, however, it’s not always that easy. The extent of government control varies greatly, and some governments tend to increase their power more than necessary. Source: https://quickonomics.com/four-types-economic-systems/ 44 | P a g e https://th.bing.com/th/id/OIP.IdVKRH-X-tn6Zke3v2DdPwAAAA?pid=ImgDet&rs=1 https://th.bing.com/th/id/R.9e0bfe0b8e8466cb0122c4917dbf66bf?rik=RdvLMVjSOxK7LQ&riu=http%3a%2f%2f948105694741125223.weebly.com%2fuploads%2f1%2f0%2f6%2f1%2f10614 282%2f6253928_orig.jpg&ehk=z%2bLtwepTrxEO6I8Y4f0U2%2bnLtToDOKWNUDtURJbMRrQ%3d&risl=&pid=ImgRaw&r=0 POLITICAL SYSTEMS Various states and governments obviously exist around the world. In this context, state means the political unit within which power and authority reside. This unit can be a whole nation or a subdivision within a nation. Thus, the nations of the world are sometimes referred to as states (or nation-states), as are subdivisions within a nation, such as California, New York, and Texas in the United States. Government means the group of persons who direct the political affairs of a state, but it can also mean the type of rule by which a state is run. Another term for this second meaning of government is political system, which we will use here along with government. The type of government under which people live has fundamental implications for their freedom, their welfare, and even their lives. Here are the major political systems in the world today. Democracy The type of government with which we are most familiar is democracy, or a political system in which citizens govern themselves either directly or indirectly. The term democracy comes from Greek and means “rule of the people.” In Lincoln’s stirring words from the Gettysburg Address, democracy is “government of the people, by the people, for the people.” In direct (or pure) democracies, people make their own decisions about the policies and distribution of resources that affect them directly. An example of such a democracy in action is the New England town meeting, where the residents of a town meet once a year and vote on budgetary and other matters. However, such direct democracies are impractical when the number of people gets beyond a few hundred. Representative democracies are thus much more common. In these types of democracies, people elect officials to represent them in legislative votes on matters affecting the population. 45 | P a g e  https://quotefancy.com/media/wallpaper/3840x2160/2265707-Bill-Moyers-Quote-Democracy-belongs-to-those-who-exercise-it.jpg Representative democracy is more practical than direct democracy in a society of any significant size, but political scientists cite another advantage of representative democracy. At least in theory, it ensures that the individuals who govern a society and in other ways help a society function are the individuals who have the appropriate talents, skills, and knowledge to do so. In this way of thinking, the masses of people are, overall, too uninformed, too uneducated, and too uninterested to run a society themselves. Representative democracy thus allows for “the cream to rise to the top” so that the people who actually govern a society are the most qualified to perform this essential task (Seward, 2010). Although this argument has much merit, it is also true that many of the individuals who do get elected to office turn out to be ineffective and/or corrupt. Regardless of our political orientations, Americans can think of many politicians to whom these labels apply, from presidents down to local officials. Democracies are certainly not perfect. Their decision-making process can be quite slow and inefficient; as just mentioned, decisions may be made for special interests and not “for the people”; and, as we have seen in earlier chapters, pervasive inequalities of social class, race and ethnicity, gender, and age can exist. Moreover, in not all democracies have all people enjoyed the right to vote. In the United States, for example, African Americans could not vote until after the Civil War, with the passage of the 15th Amendment in 1870, and women did not win the right to vote until 1920, with the passage of the 19th Amendment. In addition to generally enjoying the right to vote, people in democracies also have more freedom than those in other types of governments. Figure 1 “Freedom Around the World (Based on Extent of Political Rights and Civil Liberties)” depicts the nations of the world according to the extent of their political rights and civil liberties. The freest nations are found in North America, Western Europe, and certain other parts of the world, while the least free lie in Asia, the Middle East, and Africa. 46 | P a g e  Monarchy https://s3.amazonaws.com/zweb-s3.uploads/visiontv/2017/08/24145421/Queen_Elizabeth_Monarchy_Flags_600.jpg https://cdn.images.express.co.uk/img/dynamic/106/750x445/1329241.jpg Monarchy is a political system in which power resides in a single family that rules from one generation to the next generation. The power the family enjoys is traditional authority, and many monarchs command respect because their subjects bestow this type of authority on them. Other monarchs, however, have ensured respect through arbitrary power and even terror. Royal families still rule today, but their power has declined from centuries ago. Today the Queen of England holds a largely ceremonial position, but her predecessors on the throne wielded much more power. This example reflects a historical change in types of monarchies from absolute monarchies to constitutional monarchies (Finer, 1997). In absolute monarchies, the royal family claims a divine right to rule and exercises considerable power over their kingdom. Absolute monarchies were common in both ancient (e.g., Egypt) and medieval (e.g., England and China) times. In reality, the power of many absolute monarchs was not totally absolute, as kings and queens had to keep in mind the needs and desires of other powerful parties, including the clergy and nobility. Over time, absolute monarchies gave way to constitutional monarchies. In these monarchies, the royal family serves a symbolic and ceremonial role and enjoys little, if any, real power. Instead the executive and legislative branches of government—the prime minister and parliament in several nations—run the government, even if the royal family continues to command admiration and respect. Constitutional monarchies exist today in several nations, including Denmark, Great Britain, Norway, Spain, and Sweden. Oligarchy https://static.ffx.io/images/$zoom_1%2C$multiply_1%2C$ratio_1.777778%2C$width_2000%2C$x_0%2C$y_192/t_crop_custom/w_768/t_sharpen%2Cq_auto%2Cf_auto/3a2f8a931d9859609 108649f4f01e33cc3e491c2 47 | P a g e  The power in an oligarchy is held by a small, elite group. Unlike in a monarchy, members of an oligarchy do not necessarily achieve their statuses based on ties to noble ancestry. Rather, they may ascend to positions of power because of military might, economic power, or similar circumstances. The concept of oligarchy is somewhat elusive; rarely does a society openly define itself as an oligarchy. Generally, the word carries negative connotations and conjures notions of a corrupt group whose members make unfair policy decisions in order to maintain their privileged positions. Many modern nations that claim to be democracies are really oligarchies. In fact, some prominent journalists, such as Paul Krugman, who won a Nobel laureate prize in economics, have labeled the United States an oligarchy, pointing to the influence of large corporations and Wall Street executives on U.S. policy (Krugman 2011). Other political analysts assert that all democracies are really just “elected oligarchies,” or systems in which citizens must vote for an individual who is part of a pool of candidates who come from the society’s elite ruling class (Winters 2011). Oligarchies have existed throughout history, and today many consider Russia an example of oligarchic political structure. After the fall of communism, groups of business owners captured control of this nation’s natural resources and have used the opportunity to expand their wealth and political influence. Once an oligarchic power structure has been established, it can be very difficult for middle- and lower-class citizens to advance their socioeconomic status. Authoritarianism and Totalitarianism https://images-wixmp-ed30a86b8c4ca887773594c2.wixmp.com/f/a8b5e48f-7e36-433b-8081-851157dd7cfc/da84qnv-5d8de9fd-97c2-4c0b-a96c- f1dd2d403227.jpg?token=eyJ0eXAiOiJKV1QiLCJhbGciOiJIUzI1NiJ9.eyJzdWIiOiJ1cm46YXBwOjdlMGQxODg5ODIyNjQzNzNhNWYwZDQxNWVhMGQyNmUwIiwiaXNzIjoidXJuOmF wcDo3ZTBkMTg4OTgyMjY0MzczYTVmMGQ0MTVlYTBkMjZlMCIsIm9iaiI6W1t7InBhdGgiOiJcL2ZcL2E4YjVlNDhmLTdlMzYtNDMzYi04MDgxLTg1MTE1N2RkN2NmY1wvZGE4N HFudi01ZDhkZTlmZC05N2MyLTRjMGItYTk2Yy1mMWRkMmQ0MDMyMjcuanBnIn1dXSwiYXVkIjpbInVybjpzZXJ2aWNlOmZpbGUuZG93bmxvYWQiXX0._PSjlU7IyhPqcDJN0O2u3 bT0t2EA-vXkrG94DacUBBk Authoritarianism and totalitarianism are general terms for nondemocratic political systems ruled by an individual or a group of individuals who are not freely elected by their populations and who often exercise arbitrary power. To be more specific, authoritarianism refers to political systems in which an individual or a group of individuals holds power, restricts or prohibits popular participation in governance, and represses dissent. Totalitarianism refers to political systems that include all the features of authoritarianism but are even more repressive as they try to regulate and control all aspects of citizens’ lives and fortunes. People can be imprisoned for deviating from acceptable practices or may even be killed if they dissent in the mildest of ways. When compared to democracies and monarchies, authoritarian and totalitarian governments are more unstable politically. The major reason for this is that these governments 48 | P a g e enjoy no legitimate authority. Instead, their power rests on fear and repression. The populations of these governments do not willingly lend their obedience to their leaders and realize that their leaders are treating them very poorly; for both these reasons, they are more likely than populations in democratic states to want to rebel. Sometimes they do rebel, and if the rebellion becomes sufficiently massive and widespread, a revolution occurs. In contrast, populations in democratic states usually perceive that they are treated more or less fairly and, further, that they can change things they do not like through the electoral process. Seeing no need for revolution, they do not revolt. Since World War II, which helped make the United States an international power, the United States has opposed some authoritarian and totalitarian regimes while supporting others. The Cold War pitted the United States and its allies against Communist nations, primarily the Soviet Union, China, Cuba, and North Korea. But at the same time the United States opposed these authoritarian governments, it supported many others, including those in Chile, Guatemala, and South Vietnam, that repressed and even murdered their own citizens who dared to engage in the kind of dissent constitutionally protected in the United States (Sullivan, 2008). Earlier in U.S. history, the federal and state governments repressed dissent by passing legislation that prohibited criticism of World War I and then by imprisoning citizens who criticized that war (Goldstein, 2001). During the 1960s and 1970s, the FBI, the CIA, and other federal agencies spied on tens of thousands of citizens who engaged in dissent protected by the First Amendment (Cunningham, 2004). While the United States remains a beacon of freedom and hope to much of the world’s peoples, its own support for repression in the recent and more distant past suggests that eternal vigilance is needed to ensure that “liberty and justice for all” is not just an empty slogan. Source: pressbooks.howardcc.edu/soci101/chapter/14-2-types-of-political-systems/ https://universidadelibertaria.com.br/wp-content/uploads/2020/04/totalitarismo-1.jpg Political Factors Affecting Business Politics can enormously impact business. For example, regional laws and regulations can determine how a company operates or whether it benefits from international expansion. For this reason, aspiring entrepreneurs, business leaders, and strategists in heavily regulated industries should familiarize themselves with politics’ effects on business. Several international political factors influence business when a company expands globally. The same is true when international companies become competitors by expanding into domestic territories. A country's political nuances is one of the primary challenges of international business. Political leaders often make decisions that impact labor laws, education, transportation, and 49 | P a g e taxes, which, in turn, influence business. Navigating multiple countries’ political challenges isn't easy, so before expanding your business, it's critical to ensure it’s prepared for globalization. 1. Political stability The political situation in many countries around the world is far from stable. This instability often makes it hard for businesses to operate. The political environment can make a huge difference to any business, from startups to large corporations. Businesses are less likely to invest new capital or enter foreign markets if the political situation is tumultuous. Any time you wear the decision-maker hat, you’re risk-averse. So, you don’t want to enter a foreign market where there’s political instability. The best way to handle political volatility is to be flexible and respond quickly to changes. The World Bank’s Political stability and absence of violence/terrorism Rank is an indicator that sheds light on the historical political stability. For example, prolonged political turmoil weakened investor and consumer confidence in Egypt and Brazil. 2. Labor Laws Changes Labor law changes can be tricky. Any change in labor laws will affect businesses. Changes are typically pushed by the government. It is usually a result of demands from the working class or a shift in public opinion. Therefore, businesses need to be aware of these changes and find ways to comply. A change in political leadership can change government policies. In some countries, certain political parties are considered ‘Business Friendly.’ Some political parties are more workers-friendly in terms of policies. A great example is a push to raise the minimum wage in developed countries. Some other similar changes are: Maximum work hours and overtime changes Enhanced protections for disabled workers Trade unions related regulations Contract or part-time employment benefits Enhanced maternal and paternal rights Europe’s political environment has changed dramatically in the last three decades. A process of democratization and a shift to a market economy followed the fall of the Soviet Union. The European Union has agreed to a basic set of rules and principles regarding its governance. Fundamentally, these principles are supposed to protect people’s rights and make the market work for most people. The Maastricht Treaty, the basis for the European Union, is an example of how political changes impact employment and social security policies. 3. Foreign Trade Agreements FTAs (free trade agreements) remove trade barriers and tariffs between countries. It’s one of the best ways to boost international trade. They affect both domestic and international trade. Global business relationships have been built on these agreements for centuries. Here are a few key benefits of FTAs: Price reduction due to competition Increase in productivity Economy of scale with distributed manufacturing 50 | P a g e  Improves standard of living You get direct access to foreign markets whether you import or export. Imports, in particular, can put local businesses under pressure. The North American Free Trade Agreement is a free trade pact between the United States, Mexico, and Canada. North America’s business climate has been shaped by it. Over the years, there have been pros and cons to the agreement. The treaty has created business growth for North American companies. It established a regional market and an easy way to create integrated manufacturing hubs. However, it has also led to job losses among low-wage workers since it became easier to relocate manufacturing to areas with lower labor costs. Businesses, therefore, need to understand the implications to develop strategies that will reap the rewards of these trade policies. 4. Corruption It’s still a huge problem in some parts of the world. According to the Organization for Economic Co-operation and Development, it costs billions. Every year, more than 5% of global GDP, or US$2.6 trillion, is wasted on corruption. In addition, corruption increases business costs by up to 10%, according to the World Economic Forum. Countries with high levels of corruption can’t provide equal opportunities for similar investments. Corrupt business practices can give big companies with deep pockets and illegal government connections an unfair advantage. Corruption levels and perceptions vary widely across countries. In comparison, the developed world has low levels of corruption. Conversely, emerging economies in Asia, Africa, and South America tend to have higher levels of corruption. Since Canada adopted the Corruption of Foreign Public Officials Act (CFPOA) in 1998, bribing foreign public officials is a crime. Despite many countries criminalizing bribery, some regions consider it a normal part of doing business. 5. Tariffs Tariffs are meant to keep local businesses protected from foreign competition. Basically, you’re making consumers buy products within a country’s borders. In some cases, tariffs are used as a form of protectionism. Governments do that by placing limitations on imports through taxes or other trade barriers. Recent trade issues between the US and China have made tariffs a hot topic. When goods arrive at the border, customs officers charge tariffs. In most cases, it is paid by the buyer. There are several types of tariffs. A unit tariff is a set dollar amount on one item, like a car. Ad valorem tariffs are based on the value of imported goods. If applicable, you’ll have to figure out the impact of tariffs on raw materials and assembly parts. For example, it can reduce the available suppliers if imported products are overly expensive than similar domestic products. Prices can go up due to low supplies and competition. Product quality might stagnate with reduced competition. It can create tensions among different countries leading to more restrictions and tariffs. 51 | P a g e 6. Taxes Taxes play a big part in business and investor decisions. Countries need to offer the best tax rates to be competitive. It has a significant impact on economic growth, employment rates, and entrepreneurship. Foreign investment is thwarted by taxes that are too high or complicated. It drives out domestic investments by making them less profitable than elsewhere in the global market. For small businesses, complicated taxes mean more tax lawyer expenses. Recent studies show that a 1% increase in corporate income tax results in a 3% fall in output. Also, a 1% reduction in corporate income tax results in 0.1% growth in GDP. These are direct consequences of higher taxes: Companies have to hire experts to make sense of tax law and avoid overpaying or underpaying. This raises administrative costs for companies. Corporate and shareholder taxes cut economic growth, and capital accumulation slows down. FDI flows from high-tax countries to low-tax countries because of corporate taxes. Source: https://online.hbs.edu/blog/post/politics-and-business https://analytixminds.com/political-factors-affecting-a-business/ …..Annyeonghaseyo! malapit na matapos ang module. https://metro.co.uk/wp-content/uploads/2018/07/sei_23670040-5e73.jpg?quality=90&strip=all Economic Factors Affecting International Factors Both international and domestic businesses are often affected by the dynamic economic conditions prevalent in the market. Factors like demand and supply, interest rates, recession, inflation, etc. often have an impact on the businesses. Every business has one goal, to maximize its profit. This can be done by analyzing the demand of consumers, providing appropriate supply, along with maintaining quality of goods and services. However, there are many factors that affect this simple operation. Owing to these economic elements, the sales, production, and procurement of a business get adversely impacted. 1. Demand and Supply The demand and supply are two principal factors that affect the working of any business model. The demand is the will and ability of consumers to purchase a particular commodity, while 52 | P a g e supply is the ability of the business to provide for the demand of consumers. Suppose, a mobile phone infused with latest technology is introduced in the market, it will have a higher price because of its demand in the market. Its prices will continue to increase if the supply does not meet the demand. For instance, in the year 2000, weather played havoc with the sugar crops of Brazil, which is the largest sugar producer in the world. This led to a decrease in the supply of sugar, which in turn resulted in a steep rise in the sugar prices. However, after the initial price rise, the market forces came into play and the demand for sugar became equal to the supplied sugar. 2. Marginal and Total Utility Utility is the amount of satisfaction, that is derived by consumers from the consumption of goods. It so happens that after continuous and successive consumption of units of the same goods, the satisfaction that is experienced by a consumer starts decreasing. This often results in short- term or long-term fall in sales. Some organizations prepare for the launch of another brand, before the fall in utility and sales is experienced. The launch of new brand ensures that the revenue trend of the business does not fall. Diminishing utility is among the external factors affecting business. For example, when we buy a pizza, the first few slices give us immense satisfaction. However, there is a fall in the satisfaction levels, when we are eating the rest. Let’s assume, the marginal utility derived on the consumption of the first slice was 90. However, due to diminishing utility, the second slice had the score of 80 and the third slice was just 70. The satisfaction derived on consumption will be in a decreasing order. 3. Money and Banking Banking facilitates monetary and fiscal policies that affect business and also the customers of the business. Money in circulation dictates the purchasing power or rather the demand of the consumers. On the other hand, the banking facility dictates the borrowing capacity of individuals as well as the business. The banking policies play a decisive role in affecting the prices of goods and interest rates along with investment and asset prices. The monetary policies of countries also influence the economic activities and inflation. This whole dynamic process is also known as monetary policy transmission mechanism. 4. Income and Employment Other important aspects of the economy that affects a business operation, are the employment density and rate of income. The per capita income and density of employment determines the rate of demand, density of demand, and also the purchasing power of the people. For example, during an economic upturn, there are employment opportunities which generate income that enables people to possess a stronger purchasing power. On the contrary, as the employment density and income rate go down during recession period, the purchasing power of the people also diminishes. 5. Inflation Inflation is a phenomenon that occurs when there is too much supply of money in the economy that is not supported by the output of goods and services. As there is a lot of money floating around, the prices of goods also increase in order to sustain the businesses, resulting in the increase of costs of raw materials which are needed for production. A hike in the prices of raw materials, thus, also increases the cost of a product. 53 | P a g e 6. Exchange Rate When a company buys certain goods from a US-based organization, it will have to convert its currency into US dollars for making the payment. If the currency of the buyer is stronger than the US dollar, it will be beneficial for the company. However, if it is weak, the company will have to shell out more money. This was an example of an export business. A similar logic will also be applicable to the import business. Moreover, price competition in the international market often leads to fluctuating prices. This is because a foreign company in the US market may increase or decrease its prices depending on the changes in the exchange rate. Suppose some time ago, 1 pound was 1.5 US$. However, today, it may decrease to 1.3 US$ if the value of dollar appreciates. This will cause the imported goods from UK to become cheaper for the consumers in the US. However, this will not be good news for US exporters as UK consumers will find that they are getting lesser returns for a pound’s worth. 7. Interest Rate The rate of interest has a direct impact on the loans that business take to sustain or propel their growth. The higher the interest rates, businesses find it difficult to commit to projects that require investment. On the contrary, lower rates make it easier for people to borrow money in order to buy cars and houses. Low loan rates also provide an opportunity to people to spend more on other things, thus creating a demand for various goods and services, and thereby spurring the growth of economy. Source: https://businesszeal.com/economic-factors-affecting-business ELABORATE – INVESTIGATIVE WORK ASSIGNMENT #2: On the country that you chose in Assignment #1 of Module 1, identify the existing political and economic system of the country. Give a brief description of the existing political and economic system. (20pts) Submit your answers on our next meeting. An activity sheet is provided at the end of the module. EVALUATE – PERFORMANCE TASK (This task is to be done in groups of 3. The groupings will be announced in class) – 90pts (30pts per country) EXPORTING AND ECONOMIC/POLITICAL SYSTEMS Export Partners: SOCIALIST - Venezuela Denmark Sweden Zambia Norway Libya Belgium Ireland COMMUNIST - China Cuba Laos North Korea Vietnam FREE MARKET - India United Kingdom Australia Canada Peru Brazil Hong Kong Instructions: 1. Select ONE COUNTRY from EACH categories listed above. (Free Market, Socialist, and Communist). These are the countries where you have identified a potential market for your amazing and highly effective new detergent “Bright Future.” 54 | P a g e  2. RESEARCH the countries you have selected using the CIA Factbook, global EDGE, and Vision of Humanity websites as a starting point to determine the economic and political climate for your business venture. (Vision of Humanity: Global Peace Index This link will take you to the Home Page for “Vision of Humanity.” There you can research information regarding the “Global Peace Index” as part of your research for this module.) 3. For EACH country: A. Identify the OPPORTUNITIES and THREATS to your global business venture posed by the economic/political environment. B. If you decide to pursue your business venture in these countries, what are the specific risks that you face as an international business entrepreneur? C. What, if anything, can you do to mitigate (lessen) the risks as an exporter into these countries? Submit your answers on our next meeting. An Activity Sheet is provided at the end of the module. References en.wikipedia.org/wiki/Economic_system https://quickonomics.com/four-types-economic-systems/ https://pressbooks.howardcc.edu/soci101/chapter/14-2-types-of-political-systems/ Source: Adapted from Freedom House. (2010). Map of freedom in the world. Retrieved from http://www.freedomhouse.org/template.cfm?page=363&year=2010. https://online.hbs.edu/blog/post/politics-and-business https://analytixminds.com/political-factors-affecting-a-business/ https://businesszeal.com/economic-factors-affecting-business Videos https://www.youtube.com/watch?v=xDJyN31IdAc https://youtu.be/d8ivuSUfTg4 Transcript of Videos 1) Economic Systems 2) an economic system is the way that a nation organizes, manages, controls the 3) factors of production so that wealth or materials that get produced within the 4) the nation are somehow distributed to members of that population 5) now, the method that gets used to manage these factors of production and 6) determine who gets what, is really what defines the different economic system 7) so two ends of a spectrum: we can think about command economies versus a market 8) economy. now, a command economy is an economic system where the 9) government manages all or in some cases most of the resources within the nation 10) and oversees the types of industries that are going to operate 11) in a market economy, government is not involved 12) the resources within that nation get distributed/shared within society 13) based on this notion of supply and demand. Command economies 14) let's look a bit closer 15) two types: first type is communism - under communism the government owns all 16) of the factors of production 17) and makes all the decisions on how resources within that nation will be 18) used 19) socialism could be thought of as a watered down version of communism in 20) many ways. Government controls the critical industries but it does allow 55 | P a g e 21) individual freedom from some individual right to own property to start off small 22) businesses that the government doesn't consider to be critical to the overall 23) economy. 24) Communism: how does it work? well we could think about this idea of an entrepreneur 25) coming up with an idea. In our case opening up a coffee shop, purchasing some 26) land, getting a business up and running 27) well, in communism that wouldn't happen 28) why? government controls all of the factors of production, makes all the 29) decisions about which industries are going to operate. So the government will 30) determine how the factors of production get utilized 31) so who gets capital? how does that capital get used to build certain 32) industries? government, under communism, 33) owns all the resources and makes decisions that hopefully are going to 34) benefit the most people within society 35) no individual ownership. it's about what's good for all of society 36) not necessarily what's good for the individual. so an example: suppose its 37) middle of winter and you've got a tree out in your backyard and you need 38) firewood 39) so you go out back, decide to chop up the tree and have some firewood for your 40) home. under communism 41) that would be considered illegal. it's not your tree to chop down, it's the tree of 42) the people you just happen to be living in that house which by the way also is 43) owned by the people. under communism 44) the government would determine how many farmers there needs to be, 45) how many employees are needed to go work in a factory, 46) who is going to be a teacher. everyone needs to go to school so governments could 47) oversee and provide all that too. the government's controlling one of the 48) factors of production called Labor. what happens to the output once industry is 49) made the products it needs to make, once all the farmers have grown their food, 50) the students have been educated, and so forth? 51) well I suppose those boxes on the screen are representative of the output of the 52) economic system. under communism every member in society would be entitled to 53) an equal share of what was produced within that economic system over the 54) course of a year or a specific period 55) everyone gets the same amount 56) the second example of a command economy is socialism. remember, socialism - the 57) government controls critical industries but individuals are allowed to run 58) noncritical businesses. so in our case government has determined that a certain 59) factory will get built. 60) making a product that people need will provide jobs to citizens. effectively 61) they're employees of the government. An employee gets hired to be a teacher, a 62) certain number of people get hired to work on the farm 63) one individual decides they don't want to do that 64) they've got a musical talent and they choose to use that talent 65) to earn a living 66) so what happens in socialism is the members of society get an equal share of 67) what society produced 68) however 69) individuals who do choose to pursue businesses that are considered to be non 70) critical to the overall economic system are welcome to pursue their musical 71) talent or to pursue this other type of smaller business and sell their talents 72) to the rest of the population. a market economy: market economies are the other 73) Market economy 74) end of the spectrum. in the market economy government is not involved 75) the market is the mechanism of the exchange of goods and services and 76) resources are distributed by this concept of supply and demand 77) there's private ownership of everything 78) so in our case the entrepreneur has an idea 79) they want to get a coffee shop up and running. They need to be able to access 80) capital, they need to be able to access labor, 81) they need to be able to access natural resources and everything has a price 82) as long as the entrepreneur is able to raise the the capital in order to borrow 83) money, pay the interest back, hire the labor to do the work, 84) purchase the natural resources required to build the coffee shop and to keep it 85) running 86) they're more than welcome to do that. in a market economy 87) it's all about private ownership. you have a tree in your backyard and you decide 88) you want to go out and chop the tree down for firewood 89) you're more than welcome to do that. in fact you're more than welcome to chop 90) all the trees down on your property and do whatever you want to do with it. in a 91) market economy there is a price for everything 92) suppose the farmer wants to send his daughter to school to get an education 93) well there's a price for that education. how's he going to afford to do this? well 94) he produces product. so in our case our farmer produces milk 95) and it's got a price. the farmer takes the milk to market and tries to make it available 96) for sale 97) to see who would be willing to buy it. everyone's got freedom 98) some people are going to say no, some people are going to say yes 99) the farmer's daughter gets to go to school 56 | P a g e  100) now why would the farmer want to send his daughter to school in the first 101) place? 102) what is the point of education in a market economy? 103) opportunity. 104) education will create an individual that has more skills or knowledge, all 105) the credentials that an employer is looking for. they're then more likely to command a 106) higher wage and generate more money in the long run that they can in turn 107) purchase more goods vs. an individual who didn't get education 108) now 109) how is the output in a market economy allocated in society? those who produce, 110) those who add value, those who have skills that are in short supply 111) get the benefits of what the market economy has produced 112) those who are unable to work, those who lack the education don't benefit as much 113) under a market economy 114) this produces the haves and the have-nots. now advantages of communism vs. 115) Disadvantages 116) market economies: in communism, the wealth of the nation - what 117) what's been produced from economic system is shared equally amongst all 118) members of society. now, in market economies, what's the advantage? we get what 119) we deserve. this notion of 120) a student who 121) studies very very hard for an exam vs. the student who didn't study at all and 122) barely attended class 123) disadvantages of communism and market economies: under communism 124) everyone gets the same, regardless of how much they contributed, 125) regardless of how hard they work, regardless of how smart they are 126) it's all about equality. so in this case, the student who didn't do any work got 127) a B, but so did the student who worked very hard. there is very little motivation. in 128) market economies the big downside is potential for greed and all the negative 129) things that can happen along with that greed 130) Mixed economy 131) is there a way to blend the best parts of each of these systems? This is called a 132) mixed economy 133) a mixed economy is an economic system that features characteristics of both 134) command and market economies 135) what's interesting is most of the economies in the world are in fact mixed 136) economic systems. they have elements of the market economy but they also have 137) elements of a command economy where government gets involved 138) this even includes the united states and canada. two economic systems that we tend 139) to view as being very capitalistic. canada has a mixed economy 140) In what ways is Canada's economy like a command economy? 141) well government manages and regulates the businesses. There's a whole variety of 142) rules and regulations and laws that various levels of government within 143) Canada impose upon business 144) it keeps our water clean, it prevents people from going out and chopping down 145) all the trees and ruining a wildlife habitat and ensures that the products 146) that we purchase are safe 147) so all these rules are imposed by government in order to look after the 148) best interests of all of society 149) government is also the provider of essential services in canada and in many 150) mixed economic systems. government builds roads, provides the police force, hospital, 151) prints the money - can you imagine a private corporation in charge of printing 152) nation's money 153) now what ways is Canada's economy like a market economy? 154) well if mom and dad have enough money to send the student to school and they work 155) hard and they get a good education 156) hopefully they get a job that allows them to make more money, they can buy a 157) fancier your car than those who haven't worked as hard or we have been fortunate 158) enough to go to school and they can live in and purchase nicer homes. people who 159) are unable to go to school - for a variety of reasons - and people who don't work hard 160) may not get a job that they like, 161) may not be able to afford fancy cars, and may not have comfortable or luxurious 162) living conditions 163) so to review: 164) we could view economic systems as 165) being two ends of a spectrum. so the high government control into the spectrum 166) command economies. two examples: communism and socialism 167) opposite end of the spectrum where there's low government control: the market economy 168) somewhere in the middle, 169) a mixed economy 170) English 2) Political Systems Political systems the world is a diverse 57 | P a g e place and its countries and nations are ruled by many different forms of government in a democracy which means government of the people citizens participate in the political life of their country a democracy is direct when each citizen has an equal say in the government it is representative when the citizens elect officials to represent them a democracy can become corrupted if the wealthy take control of politics in that case a democracy becomes an oligarchy which means government of the few some democracies can be classified as Republic's in these countries the heads of state and the ministers are the product of elections therefore these important officials do not have hereditary powers and change regularly a monarchy instead has a hereditary head of state the monarch a king or a queen belongs to a royal family and power is passed on from generation to generation in an absolute monarchy the monarch as the final say in the questions of government in a constitutional monarchy his or her powers are limited by a constitution a constitutional monarchy can be considered a democracy a communist state is based on the ideology of communism the ultimate aim of communism is to create a stateless classless society in a communist state one political party dominates the government a dictatorship is an authoritarian type of government where a dictator rules makes the decisions and is not limited by a constitution dictators often seize power by force the United States is a federal republic the president the Congress and the federal courts share the power of government according to the American Constitution the world's oldest written constitution the president is the head of the executive branch the two chambers of Congress the Senate and the House of Representatives is the legislative body its function is to make laws the Supreme 58 | P a g e Court and the lower federal courts make up the judicial branch the United Kingdom is a constitutional monarchy the British monarch has limited powers please include paying state visits to other countries and summoning and dissolving Parliament the head of the government is the Prime Minister his official residence is in number 10 Downing Street the Parliament is the legislative body it consists of the House of Commons and the House of Lords the members of the former are elected while those of the latter are hereditary curiously the United Kingdom does not have a written constitution it's unwritten Constitution is based on custom tradition and common law [Music] English (auto-generated 59 | P a g e  Activity Sheet #1 Assignment #1 – Misconception Check Answer the following questions according to what you have previously learned. Submit on the next meeting. (30pts) 1. What is a system? 2. What is an economic system? A political system? 3. What are the different economic systems? Political systems? 60 | P a g e  Activity Sheet #2 Assignment #2 – Elaborate – Descriptive Investigation On the country that you chose in Assignment #1 of Module 1, identify the existing political and economic system of the country. Give a brief description of the existing political and economic system. (20pts) 61 | P a g e  Activity Sheet #3 Performance Task - Exporting and Economic/Political Systems Export Partners: SOCIALIST - Venezuela Denmark Sweden Zambia Norway Libya Belgium Ireland COMMUNIST - China Cuba Laos North Korea Vietnam FREE MARKET - India United Kingdom Australia Canada Peru Brazil Hong Kong Instructions: 1. Select ONE COUNTRY from EACH of the categories listed above. (Free Market, Socialist, and Communist). These are the countries where you have identified a potential market for your amazing and highly effective new detergent “Bright Future.” 2. RESEARCH the countries you have selected using the CIA Factbook, globalEDGE, and Vision of Humanity websites as a starting point to determine the economic and political climate for your business venture. (Vision of Humanity: Global Peace Index This link will take you to the Home Page for “Vision of Humanity.” There you can research information regarding the “Global Peace Index” as part of your research for this module.) 3. For EACH country: A. Identify the OPPORTUNITIES and THREATS to your global business venture posed by the economic/political environment. B. If you decide to pursue your business venture in these countries, what are the specific risks that you face as an international business entrepreneur? C. What, if anything, can you do to mitigate (lessen) the risks as an exporter into these countries? Submit your answers on our next meeting. 62 | P a g e  User’s Feedback To the user: please provide your comments, suggestions, and recommendations to further improve this module. Your feedback is highly valued. 63 | P a g e Pabaon ng Module 3…….. https://th.bing.com/th/id/OIP.H8tzt1E4JkztZluYyOzplgHaK1?pid=ImgDet&w=600&h=878&rs=1 https://th.bing.com/th/id/OIP.xGsSulmvwij0-51IvcxhcgHaE5?pid=ImgDet&rs=1 https://i0.wp.com/www.habkorea.net/wp-content/uploads/2019/09/KPOP-boy-group-SEVENTEEN.jpg?resize=1150%2C706&ssl=1 https://staticc.sportskeeda.com/editor/2022/05/c9bb4-16538593495002-1920.jpg https://www.koreaboo.com/wp-content/uploads/2017/05/TWICE-1-1.jpg https://0.soompi.io/wp-content/uploads/2018/07/04091856/Red-Velvet18.jpg = End of Module 3 = 64 | P a g e