Economics in AsiaEconomics in Asia

All Economic Systems seek to answer All Economic Systems seek to answer the three basic economic questionsthe three basic economic questions

1) What to produce?1) What to produce?

2)How to produce?2)How to produce?

3) For whom to 3) For whom to produce?produce?

Command EconomiesCommand EconomiesBasic economic questions answered by Basic economic questions answered by the government (central authority)the government (central authority)

How do command economies answer How do command economies answer the basic economic questions?the basic economic questions?

1) What to produce? Whatever the 1) What to produce? Whatever the government says to producegovernment says to produce

2) How to produce? However the 2) How to produce? However the government tells you to producegovernment tells you to produce

3) For whom to produce? For whomever the 3) For whom to produce? For whomever the government tells you to produce (ideally government tells you to produce (ideally the entire society)the entire society)

Advantages to command economyAdvantages to command economy

Because the government has total control Because the government has total control over production and its factors, these over production and its factors, these economies can change rapidly. Whatever is economies can change rapidly. Whatever is needed most will be produced.needed most will be produced.There is no uncertainty (people are told There is no uncertainty (people are told when and how to work)when and how to work)Free education, health care, and other Free education, health care, and other public servicespublic services

Disadvantages of command economiesDisadvantages of command economies

Economy designed to meet Economy designed to meet needsneeds not not wantswantsNo incentive to work hard…people don’t No incentive to work hard…people don’t often lose their jobs, so they do the bare often lose their jobs, so they do the bare minimum to get byminimum to get byLarge bureaucracy means slow decision Large bureaucracy means slow decision making, raises cost of production, lacks making, raises cost of production, lacks flexibilityflexibilityNo reward for initiative slows progressNo reward for initiative slows progress

Traditional EconomiesTraditional Economies

Basic economic questions answered Basic economic questions answered by what has been done in the past. by what has been done in the past. Traditions are maintained. Ritual, Traditions are maintained. Ritual, Habit, and CustomHabit, and Custom

Traditional economiesTraditional economies

Individual roles and choices are defined by Individual roles and choices are defined by the customs of elders and ancestorsthe customs of elders and ancestors

These economies are usually based in These economies are usually based in societies of hunter/gathererssocieties of hunter/gatherers

Sharing is a big part of these economiesSharing is a big part of these economies

How do traditional economies answer How do traditional economies answer the three basic questions?the three basic questions?

1) What to produce? Whatever ritual, habit 1) What to produce? Whatever ritual, habit or custom dictatesor custom dictates

2) How to produce? However ritual, habit or 2) How to produce? However ritual, habit or custom dictatecustom dictate

3) For whom to produce? For whomever 3) For whom to produce? For whomever ritual, habit or custom dictateritual, habit or custom dictate

Advantages of traditional economyAdvantages of traditional economy

There is little or no uncertainty…everyone There is little or no uncertainty…everyone knows what role to play.knows what role to play.

Life is generally stable, predictable, and Life is generally stable, predictable, and continuouscontinuous

Disadvantages of Traditional economiesDisadvantages of Traditional economies

Tend to discourage new ideas and new Tend to discourage new ideas and new ways of doing thingsways of doing things

Lack of progress lowers standard of livingLack of progress lowers standard of living

Market EconomiesMarket Economies

Basic economic questions answered by Basic economic questions answered by consumersconsumers

How do market economies answer the How do market economies answer the three basic questions?three basic questions?

1) What to produce? Whatever people need 1) What to produce? Whatever people need and wantand want

2) How to produce? However companies 2) How to produce? However companies decide to produce their productdecide to produce their product

3) For whom to produce? For whomever 3) For whom to produce? For whomever wants to purchase their productwants to purchase their product

Advantages of Market EconomiesAdvantages of Market Economies

Adjusts to change based on consumer wantsAdjusts to change based on consumer wants

High degree of individual freedomHigh degree of individual freedom

Low levels of government interferenceLow levels of government interference

Because individuals (with money) make the Because individuals (with money) make the decisions, everyone (with money) has a voice in decisions, everyone (with money) has a voice in the way the economy runsthe way the economy runs

Wide variety of available goods & servicesWide variety of available goods & services

Many choices=high degree of consumer Many choices=high degree of consumer satisfactionsatisfaction

Disadvantages of Market EconomiesDisadvantages of Market Economies

Poverty: only those with money can participatePoverty: only those with money can participate

Market does not provide for people’s basic Market does not provide for people’s basic needs. Governments must attempt to do this needs. Governments must attempt to do this (think Katrina). High degree of uncertainty (think Katrina). High degree of uncertainty people lose jobs, businesses failpeople lose jobs, businesses fail

Greed based system puts profit before peopleGreed based system puts profit before people

Economic SystemsEconomic Systems

PurePure

MarketMarketPurePure

CommandCommand

ChinaChina

What to produce? What to produce?

40 % of the Chinese economy is still 40 % of the Chinese economy is still based in state-run industries based in state-run industries

60% of the economy is based on the 60% of the economy is based on the private sector in where producers and private sector in where producers and consumers make production decisionsconsumers make production decisions

ChinaChina

How to produce? How to produce? The many inefficiencies found in the The many inefficiencies found in the state-run industries, particularly in the state-run industries, particularly in the area of agriculture, limit China’s growth. area of agriculture, limit China’s growth. In the private market, the speed of In the private market, the speed of economic growth has caused Chinese economic growth has caused Chinese officials to have increasing difficulty officials to have increasing difficulty monitoring consumer safety and monitoring consumer safety and environmental pollution. environmental pollution.

ChinaChinaFor whom to produce? For whom to produce?

China requires food production to meet China requires food production to meet self-sufficiency level for the nation and only self-sufficiency level for the nation and only the surplus may be exported. In reality, the surplus may be exported. In reality, there is not enough proper storage of food there is not enough proper storage of food to meet the self-sufficiency requirement. to meet the self-sufficiency requirement. China exports a large amount of China exports a large amount of manufactured goods. However, the manufactured goods. However, the expanding middle class in China is seen as expanding middle class in China is seen as a growth market for both Chinese and a growth market for both Chinese and foreign companies. foreign companies.

Economic SystemsEconomic Systems

PurePure

MarketMarketPure

Command

Place on the continuum: China is slightly on the Place on the continuum: China is slightly on the market side of center on the continuum.market side of center on the continuum.

ChinaChina

IndiaIndia

What to produce? What to produce?

Since 1991, India has slowly allowed the Since 1991, India has slowly allowed the markets to open up to private sector markets to open up to private sector domestic and foreign businesses. domestic and foreign businesses.

The majority of the population relies on The majority of the population relies on subsistence agriculture as a means of subsistence agriculture as a means of survival. survival.

There is a lot of bureaucracy and There is a lot of bureaucracy and corruption involved in setting up and corruption involved in setting up and operating business. operating business.

How to produce? How to produce?

India is increasing its oversight of India is increasing its oversight of intellectual and private property rights, intellectual and private property rights, but legal challenges are fraught with but legal challenges are fraught with bureaucracy. bureaucracy.

India has an increasingly educated India has an increasingly educated workforce particularly in areas of workforce particularly in areas of engineering and computer science.engineering and computer science.

IndiaIndia

For whom to produce? For whom to produce?

Food production is largely for domestic Food production is largely for domestic consumers with many citizens consumers with many citizens producing food mainly for their own producing food mainly for their own family consumption. family consumption.

The software and business process The software and business process outsourcing industries are rapidly outsourcing industries are rapidly expanding export markets for private expanding export markets for private Indian companies. Indian companies.

IndiaIndia

Economic SystemsEconomic Systems

PurePure

MarketMarketPure

Command

Place on the continuum: India would be more to Place on the continuum: India would be more to the market side of the continuum than China.the market side of the continuum than China.

IndiaIndia

JapanJapan

What to produce? What to produce? Japan’s economy is primarily market Japan’s economy is primarily market driven with supply and demand driven with supply and demand determining what will be produced. determining what will be produced. The few industries that are highly The few industries that are highly government-controlled, such as government-controlled, such as agriculture, have much lower agriculture, have much lower productivity rates than those industries productivity rates than those industries controlled by market forces.controlled by market forces.

JapanJapanHow to produce? How to produce?

Private businesses determine their Private businesses determine their own production processes in most own production processes in most of the economy.of the economy.

JapanJapan

For whom to produce? For whom to produce? Japan’s population enjoys a high Japan’s population enjoys a high standard of living and creates a strong standard of living and creates a strong domestic market for goods and domestic market for goods and services. services. The efficiency of Japan’s production The efficiency of Japan’s production and its reputation for quality and its reputation for quality products/services has made it a major products/services has made it a major exporter.exporter.

Economic SystemsEconomic Systems

PurePure

MarketMarketPure

Command

Place on the continuum: Out of all four countries Place on the continuum: Out of all four countries in this element, Japan would be the closest to the in this element, Japan would be the closest to the

market side of the continuum. market side of the continuum.

JapanJapan

North KoreaNorth KoreaWhat to produce? What to produce?

Although there have been some small market Although there have been some small market reforms recently, the majority of legal reforms recently, the majority of legal economic activities are centrally controlled by economic activities are centrally controlled by the government. the government. Due to natural disaster and inefficient Due to natural disaster and inefficient government-run industries, North Korea is a government-run industries, North Korea is a major recipient of food and basic service aid major recipient of food and basic service aid from Non-Governmental Organizations (NGO) from Non-Governmental Organizations (NGO) and foreign nations. The U.S. provides the and foreign nations. The U.S. provides the people of North Korea with a large amount of people of North Korea with a large amount of aid. aid. Like in many highly centralized economies, Like in many highly centralized economies, there is a large underground economy that there is a large underground economy that runs on a more market based system. runs on a more market based system.

North KoreaNorth Korea

How to produce? How to produce?

Production decisions and methods are Production decisions and methods are primarily determined by the primarily determined by the government.government.

North KoreaNorth Korea

For whom to produce? For whom to produce?

Approximately one fourth of all domestic Approximately one fourth of all domestic output is devoted to maintaining the output is devoted to maintaining the military. This severely limits the amount of military. This severely limits the amount of goods and services that make it to the rest goods and services that make it to the rest of the people of North Korea. of the people of North Korea.

North Korea produces natural resources North Korea produces natural resources

Economic SystemsEconomic Systems

PurePure

MarketMarketPure

Command

Place on the continuum: North Korea would be much more to the command side of the continuum

than any of the other nations discussed. One of the most command economies in the world today.

North

North

KoreaKorea

Economic SystemsEconomic Systems

PurePure

MarketMarketPure

Command

Place on the continuum: Out of all four countries Place on the continuum: Out of all four countries in this element, Japan would be the closest to the in this element, Japan would be the closest to the

market side of the continuum. market side of the continuum.

JapanJapanChina

India

North

North

KoreaKorea

Why do countries have mixed economies? Why do countries have mixed economies?

A. Each part of a country has different A. Each part of a country has different types of money. types of money.

B. A country’s economy has both national B. A country’s economy has both national and state elements. and state elements.

C. Each part of a country has a different C. Each part of a country has a different economy. economy.

D. A country’s economy has both D. A country’s economy has both command and market elements.command and market elements.

Why do countries have mixed economies? Why do countries have mixed economies?

A. Each part of a country has different A. Each part of a country has different types of money. types of money.

B. A country’s economy has both national B. A country’s economy has both national and state elements. and state elements.

C. Each part of a country has a different C. Each part of a country has a different economy. economy.

D. A country’s economy has both D. A country’s economy has both command and market elements. *command and market elements. *

The North Korean government determines: The North Korean government determines: What to produce What to produce How to produce How to produce

For whom to produceFor whom to produce According to the information above, North Korea’s According to the information above, North Korea’s

economy is MOST LIKE which economic economy is MOST LIKE which economic system? system? A. Traditional A. Traditional B. Market B. Market C. CommandC. CommandD. Bartering D. Bartering

The North Korean government determines: The North Korean government determines: What to produce What to produce How to produce How to produce

For whom to produceFor whom to produce According to the information above, North Korea’s According to the information above, North Korea’s

economy is MOST LIKE which economic economy is MOST LIKE which economic system? system? A. Traditional A. Traditional B. Market B. Market C. Command* C. Command* D. Bartering D. Bartering

SpecializationSpecialization

Specialization encourages trade and can be Specialization encourages trade and can be a positive factor in a country’s economy. a positive factor in a country’s economy. Specialization occurs when one country can Specialization occurs when one country can produce a good or service at a lower produce a good or service at a lower opportunity cost than another country. opportunity cost than another country.

What are the potential problems of over-What are the potential problems of over-specialization, such as one-crop economies specialization, such as one-crop economies and lack of diversification? How can this and lack of diversification? How can this impact a region’s economy? impact a region’s economy?

Trade BarriersTrade Barriers

Tariff Tariff – a duty levied by a government on imported – a duty levied by a government on imported or exported goods; a list of fees fares, or other or exported goods; a list of fees fares, or other prices charged by a business.prices charged by a business.Quota Quota – a maximum number or quantity that is – a maximum number or quantity that is permitted or neededpermitted or neededEmbargos –Embargos – a government order restricting or a government order restricting or prohibiting commerce, especially trade in a given prohibiting commerce, especially trade in a given commodity or with a particular nationcommodity or with a particular nation

Why would a specific trade barrier be used and Why would a specific trade barrier be used and how would that trade barrier affect each how would that trade barrier affect each country involved?country involved?

Currency ExchangeCurrency Exchange

Currency exchange – the act of exchanging Currency exchange – the act of exchanging money from one currency to another money from one currency to another Example: dollar to a euroExample: dollar to a euro

Exchange rates provide a procedure for Exchange rates provide a procedure for determining the value of one country’s currency in determining the value of one country’s currency in terms of another country’s currency. Without a terms of another country’s currency. Without a system for exchanging currencies, it would be system for exchanging currencies, it would be very difficult to conduct international trade. very difficult to conduct international trade.

Jiang wants to sell his products manufactured in Jiang wants to sell his products manufactured in his country to consumers in several other Asian his country to consumers in several other Asian countries. This will involve him in international countries. This will involve him in international trade. What needs to be in place so Jiang can trade. What needs to be in place so Jiang can accurately determine the price of his products in accurately determine the price of his products in these other nations? these other nations?

A. A common Asian currency. A. A common Asian currency.

B. An embargo on the countries he trades with. B. An embargo on the countries he trades with.

C. A system for exchanging currencies between C. A system for exchanging currencies between countries.countries.

D. A treaty with each country setting the price for D. A treaty with each country setting the price for his products. his products.

Jiang wants to sell his products manufactured in Jiang wants to sell his products manufactured in his country to consumers in several other Asian his country to consumers in several other Asian countries. This will involve him in international countries. This will involve him in international trade. What needs to be in place so Jiang can trade. What needs to be in place so Jiang can accurately determine the price of his products in accurately determine the price of his products in these other nations? these other nations?

A. A common Asian currency. A. A common Asian currency.

B. An embargo on the countries he trades with. B. An embargo on the countries he trades with.

C. A system for exchanging currencies between C. A system for exchanging currencies between countries.* countries.*

D. A treaty with each country setting the price for D. A treaty with each country setting the price for his products. his products.

In order to protect a nation’s car manufacturing In order to protect a nation’s car manufacturing industry from foreign car producers, the industry from foreign car producers, the government charges the importer a fee for each government charges the importer a fee for each imported car. This is an example of what kind of imported car. This is an example of what kind of trade barrier? trade barrier?

A. Subsidy A. Subsidy B. TariffB. TariffC. Quota C. Quota D. Embargo D. Embargo

In order to protect a nation’s car manufacturing In order to protect a nation’s car manufacturing industry from foreign car producers, the industry from foreign car producers, the government charges the importer a fee for each government charges the importer a fee for each imported car. This is an example of what kind of imported car. This is an example of what kind of trade barrier? trade barrier?

A. Subsidy A. Subsidy B. Tariff* B. Tariff* C. Quota C. Quota D. Embargo D. Embargo

Human CapitalHuman Capital

Human capitalHuman capital – education and training – education and training of workers whether formal or on-the-jobof workers whether formal or on-the-job

Gross Domestic Product (GDPGross Domestic Product (GDP) - value of ) - value of all goods and services produced within a all goods and services produced within a countrycountry

If the literacy rate is growing quickly, is If the literacy rate is growing quickly, is the GDP growing at a fast rate also? the GDP growing at a fast rate also?

Highly developed economies like the Highly developed economies like the USA and Japan have smaller growth USA and Japan have smaller growth rates because the size of these rates because the size of these economies are already so large. Japan economies are already so large. Japan has the second largest economy in the has the second largest economy in the world.world.

IndiaIndia

Years compulsory—Years compulsory—No compulsory No compulsory education education

Literacy RateLiteracy Rate— 64.84% — 64.84%

Real growth rate (2006-2007): 9.4% Real growth rate (2006-2007): 9.4%

Capital Investment—Capital Investment—39% of GDP39% of GDP

ChinaChinaYears compulsory—Years compulsory—Up to Grade 9 Up to Grade 9

Literacy RateLiteracy Rate— 90.9% — 90.9%

Real growth rate (2007): 11.4% Real growth rate (2007): 11.4%

Capital Investment—Capital Investment—40.2% of GDP 40.2% of GDP

JapanJapan

Years compulsory— Years compulsory— Up to Grade 9 (only Up to Grade 9 (only 4% leave school after this grade) 4% leave school after this grade)

Literacy Rate— 99% Literacy Rate— 99%

Real growth rate (2007): 2.5%Real growth rate (2007): 2.5%

Capital Investment—Capital Investment—22.5% of GDP 22.5% of GDP

How does the presence or How does the presence or absence of natural resources absence of natural resources impact a country’s economy ?impact a country’s economy ?

Japan is a great example of a country with Japan is a great example of a country with few natural resources that has developed few natural resources that has developed systems of production and trade that are systems of production and trade that are so efficient that they have been able to so efficient that they have been able to develop one of the best economies in the develop one of the best economies in the world. It is worth noting that Japan does world. It is worth noting that Japan does not have to maintain a large military like not have to maintain a large military like other nations. other nations.

How has entrepreneurship aided How has entrepreneurship aided development in India, China, and Japan?development in India, China, and Japan?

If there is a lack of entrepreneurship, how If there is a lack of entrepreneurship, how has this affected development in these has this affected development in these regions? regions?

China’s economy has begun to change from China’s economy has begun to change from a command economy to a more market a command economy to a more market economy. This has resulted in increased economy. This has resulted in increased investment both by the Chinese and by investment both by the Chinese and by foreign entrepreneurs. How will this foreign entrepreneurs. How will this investment in capital affect China’s GDP? investment in capital affect China’s GDP?

A. Increase GDPA. Increase GDP

B. Decrease GDP B. Decrease GDP

C. No effect on GDP C. No effect on GDP

D. Not related to GDP D. Not related to GDP

China’s economy has begun to change from China’s economy has begun to change from a command economy to a more market a command economy to a more market economy. This has resulted in increased economy. This has resulted in increased investment both by the Chinese and by investment both by the Chinese and by foreign entrepreneurs. How will this foreign entrepreneurs. How will this investment in capital affect China’s GDP? investment in capital affect China’s GDP?

A. Increase GDP* A. Increase GDP*

B. Decrease GDP B. Decrease GDP

C. No effect on GDP C. No effect on GDP

D. Not related to GDP D. Not related to GDP

Microsoft Corp, the world's largest software company, said that Microsoft Corp, the world's largest software company, said that the company will invest $1.7 billion in India over the next the company will invest $1.7 billion in India over the next four years to expand its operations. The money will be spent four years to expand its operations. The money will be spent to make India a major hub for Microsoft's research, product to make India a major hub for Microsoft's research, product and application development, and services and technical and application development, and services and technical support. India's highly skilled software professionals, low-support. India's highly skilled software professionals, low-cost operations, a booming economy, good cost operations, a booming economy, good telecommunications links, and a rapidly growing market telecommunications links, and a rapidly growing market have made many foreign companies announce plans to have made many foreign companies announce plans to expand their operations in India. expand their operations in India.

Which is an example of human capital in the above Which is an example of human capital in the above passage? passage? A. skilled software professionals A. skilled software professionals B. computer factories in New Delhi B. computer factories in New Delhi C. research products for Microsoft C. research products for Microsoft D. loans to local software companies D. loans to local software companies

Microsoft Corp, the world's largest software company, said that Microsoft Corp, the world's largest software company, said that the company will invest $1.7 billion in India over the next the company will invest $1.7 billion in India over the next four years to expand its operations. The money will be spent four years to expand its operations. The money will be spent to make India a major hub for Microsoft's research, product to make India a major hub for Microsoft's research, product and application development, and services and technical and application development, and services and technical support. India's highly skilled software professionals, low-support. India's highly skilled software professionals, low-cost operations, a booming economy, good cost operations, a booming economy, good telecommunications links, and a rapidly growing market telecommunications links, and a rapidly growing market have made many foreign companies announce plans to have made many foreign companies announce plans to expand their operations in India. expand their operations in India.

Which is an example of human capital in the above Which is an example of human capital in the above passage? passage? A. skilled software professionals* A. skilled software professionals* B. computer factories in New Delhi B. computer factories in New Delhi C. research products for Microsoft C. research products for Microsoft D. loans to local software companies D. loans to local software companies

China’s economy is growing at a very rapid China’s economy is growing at a very rapid pace. Why are entrepreneurs important in pace. Why are entrepreneurs important in the growth and transition of China’s the growth and transition of China’s economy? economy?

A. They build new factories. A. They build new factories.

B. They run the government. B. They run the government.

C. They planned the Olympics in 2008. C. They planned the Olympics in 2008.

D. They provided guidance on education. D. They provided guidance on education.

China’s economy is growing at a very rapid China’s economy is growing at a very rapid pace. Why are entrepreneurs important in pace. Why are entrepreneurs important in the growth and transition of China’s the growth and transition of China’s economy? economy?

A. They build new factories.* A. They build new factories.*

B. They run the government. B. They run the government.

C. They planned the Olympics in 2008. C. They planned the Olympics in 2008.

D. They provided guidance on education. D. They provided guidance on education.