Key Political and Economic Systems PDF

Key Political and Economic Systems Political Systems: Democracy: Power rests with the people. Example: Canada, USA. Autocracy: Power is concentrated in one person or a small group. Example: North Korea, Saudi Arabia. Economic Systems: Market Economy: Economic decisions a...

Key Political and Economic Systems Political Systems: Democracy: Power rests with the people. Example: Canada, USA. Autocracy: Power is concentrated in one person or a small group. Example: North Korea, Saudi Arabia. Economic Systems: Market Economy: Economic decisions are made by individuals or the market (supply and demand). Example: USA, Australia. Centrally Planned Economy: Government controls all aspects of the economy, including production and pricing. Example: North Korea, Cuba. Mixed Economy: A blend of market and government control. Example: United Kingdom, France. Types of Countries: Underdeveloped Countries: Have low living standards and limited industrialization. Example: Niger, Afghanistan. Developing Countries: In transition, improving infrastructure and economy. Example: India, Kenya. Developed Countries: High standard of living, industrialized. Example: Germany, Japan. Economic Terms: Gross Domestic Product (GDP): The total value of goods and services produced in a country in a year. A higher GDP usually means a stronger economy. Business Cycle: The cycle of economic expansion and contraction. ○ Stages: Expansion, Peak, Recession, Trough. ○ Leading Indicators: Predict future economic activity (e.g., stock market). ○ Lagging Indicators: Follow the economy (e.g., unemployment rate). ○ Coincident Indicators: Happen at the same time as economic trends (e.g., GDP). Absolute Advantage: A country’s ability to produce more of a good than another country using the same resources. ○ Example: If Country A can make 10 cars per day and Country B can only make 5, Country A has the absolute advantage.  Comparative Advantage: A country’s ability to produce a good at a lower opportunity cost than another country. ○ Example: If Country A gives up 2 cars to produce 10 computers, but Country B gives up 5 cars to produce 10 computers, Country A has the comparative advantage in producing computers. Lobbying: Lobbying is when individuals or groups try to influence government policy and decisions. ○ Examples: NRA (National Rifle Association), Greenpeace, Big Pharma. International Trade & Business: Trade Missions: Government-sponsored trips to help businesses expand internationally. Worth the tax dollars if they lead to increased exports and economic growth, but can be costly with uncertain benefits. Government Influence on International Trade: Through policies like tariffs, trade agreements, and subsidies. ○ Example: Tariffs raise the price of imports, encouraging local businesses. Services of a Consulate: A consulate helps citizens abroad with services like passport renewals, legal issues, and emergency assistance. Heckscher–Ohlin Model: This model explains international trade patterns based on a country’s factor endowments (labor, capital, land). Countries will export goods that use their abundant resources and import goods that require scarce resources. Financial Crisis & Subprime Mortgage: Subprime Mortgage: Loans given to people with poor credit, leading to risky investments.  Foreclosure: When a borrower cannot repay a loan, and the lender takes back the property. Worldwide Effects of the US Financial Crisis: It caused global economic downturn, affecting countries that were interconnected with the U.S. economy through trade, investments, and finance. Advantages & Disadvantages for Business: Developed Countries: ○ Advantages: High standard of living, good infrastructure, skilled labor. ○ Disadvantages: High competition, expensive labor. Developing Countries: ○ Advantages: Lower labor costs, potential for growth. ○ Disadvantages: Poor infrastructure, political instability. Human Development Index (HDI): HDI: A measure of a country’s average achievements in three basic dimensions: health (life expectancy), education (mean years of schooling), and income (GNI per capita). ○ Ranges from 0 to 1; the closer to 1, the more developed the country. Influences on International Business: Political Factors: Laws, stability, and government policy affect business operations. Economic Factors: Currency exchange rates, inflation, and economic conditions can impact international business. Geographic Factors: Location, access to resources, and trade routes influence business success. Roles of Corporations: Corporations influence domestic and international policy through lobbying and by setting trends in international trade and finance. How Countries are Classified:  Developed Countries: High HDI, well-developed infrastructure, and economy. Examples: USA, Germany. Developing Countries: Middle-income, improving infrastructure and economy. Examples: Brazil, Mexico. Underdeveloped Countries: Low HDI, high poverty, limited development. Examples: Afghanistan, Haiti. Global North: Mostly developed countries (e.g., USA, Canada, Europe). Global South: Mostly developing or underdeveloped countries (e.g., Africa, Latin America).