SS 1D - Module 4 & 5 Flashcards
(56 cards)
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Decision makingof private individuals - Economy under the will and interest of the individuals.
- Economic freedom to
purchase and sell products, services, and properties. - This condition is
not planned by a single person or groupthat has the ability to manipulate or direct the economy solely. - It
promotes competitionamong business and firms
MARKET ECONOMY
- A c
entral economic planning bodyhandles the entire decision making. - The
quality and quantity of goodsand services produced is based on the decision of the government. - Production quantity is dictated, consumer behavior is directed, and market operation is controlled by a single authority.
- Its objective is to
mobilize resourcesfor the common good of the public and for the interest of the nation. - Private individuals have no say in the economic operation.
COMMAND ECONOMY
Market-driven economies- Combination of market and command economies.
- Some sectors are under the directions of the private individuals while other aspects of the economy are left within the guidance of the government.
- State can take over the ownership and operation of a private company for the purpose of maintaining the interest of the nation.
MIXED ECONOMY
3 ECONOMIC SYSTEMS
Market Economy
* Hongkong
* New Zealand
* Australia
* Switzerland
Command Economy
* North Korea
* Cuba
* Russia
* China
Mixed Economy
* Philippines
* United States
* United Kingdom
* France
Is the process and the system when goods, commodities, services cross national economy, and boundaries in exchange for money or goods of another country (Balaam and Veseth, 2008).
International Trade
has grown dramatically since the post-cold war era because of increasing demand of goods and services and countries. This global norm reflects growing practice of internationalizing and globalizing local products and services.
Global trade
TRADE THEORIES
- Descriptive Theory
- Prescriptive Theory
- it deals with the
natural orderand themovement of trade. It describes the pattern of trade under the idea of laissez faire, a French term which means"leave alone". It refers to the notion that individuals are best economic agents to solve the problems throughinvisible handrather than government policies. It also addresses the questions which product to trade, how much product to offer and produce, andwhich country to trade in the absence of government restrictions.
Descriptive Theory
- it prescribes whether
government, an important economic institution,should interfere and restrict with the movement of goods and services. This theory views government to have participation in deciding which countries to alter the amount, composition, and direction of goods.
Prescriptive Theory
3 PERSPECTIVES ON INTERNATIONAL TRADE
- Economic Liberals
- Mercantilists
- Structuralists
For David Ricardo, his influential work, Law of Comparative Advantage explains that free trade efficiency is attainable if two countries can produce more goods and trade products separately. The advantage of this theory in international trade is deriving principle of specialization and division of labor of Adam Smith (Nau, 2009). Counties have different resources and talents, they are better in performing in that economic activity than other economic activities.
Economic Liberals
explain the importance of free trade and the role of individual's preference in choosing economic activity. It includes making decision, and choices on comparing the costs of products to be produced and traded, the availability of the product, and the efficiency of producing and buying products.
Economic liberals
is an economic theory emerged from about 1500-1800. This period was the emerging eras of nation-states and the formation of more central governments. This system flourished due to the following reasons:
a. Higher Exports than Imports – Governments enforced policies to ensure exports exceeded imports, supporting trade goals and strengthening colonial rule.
b. Control Over High-Value Goods – Colonies were restricted from producing high-value goods, ensuring monopolization by colonial powers.
c. Colonial Benefits – Mercantilism maintained colonial power by controlling the economy and maximizing benefits for the ruling nation.
Mercantilism
The Modern World System (MWS) theory developed by Immanuel Wallerstein, explain the contact of economies between core, semi-peripheral, and peripheral countries in the world.
* The core states have the absolute advantage over the other through unequal exchange and extraction of raw materials from the periphery and semi-periphery. This system as part on the structure of the global capitalism, involves exploitation, and transformation in some ways.
Structuralists
Why Countries Engage in International Trade?
- Use of exess capacity in demand
- cost reduction and increase of profit
- cheaper suppies
- addiction to product line
- reduction of risk
- foreign policy tool
. The inadequate domestic demand pushes business organization to expand their market base outside the national territory. This is usually done by the firms and companies that have the resources and capacity to operate in transnational market. Giant brands like Nestle, Pepsi, McDonald’s, Toyota, and Starbucks are known for expanding their operations outside their home country.
Use of Excess Capacity in Demand
. A market leader for a particular good or service may garner a lower production cost by increasing its market in global rather than domestic. This enables a firm to increase its profit while reducing its operating costs.
Cost Reduction and Increase of Profit
. a country imports goods from other countries because of inexpensive raw materials and supplies used for production. The availability of buying cheaper materials from other countries lowers the costs in production which might result an increase in the profit of businesses.
Cheaper Supplies
Economies usually aim for a variety of products and services available in market. It offers consumer to choose and by products that are competitive prices, degree of importance, and will offer higher satisfaction
Addiction to Product Line
. Importing products is seen as an alternative to countries that are vulnerable to supply shortage. These countries that have high volume of imported goods are economies that confront the demand and supply condition of the local market.
Reduction of Risk
. The membership of a country to regional market integration and economic relationships is part of its foreign policy. Enhancing the economic and political affiliation of a country is very important in sustaining its international status in a global market.
Foreign Policy Tool
The role of Multinational Corporation (MNCs) in the 21st is distinct and interesting to investigate. The movement of ideas, capital, investment, technology, and people are affected by the operations of MCNs. As the global economy is becoming complex and competitive, MCNs continue to offer innovations and new product and services. For several years, the term MCNs was used to refer to a firm operating in different countries around the world. Because of the magnitude of global production and networks, the term transnational corporation (TNC) became the more acceptable name. This refers to business organizations and firms that compete in regional or global markets. It operates in countries and makes investments in research, technology, facilities, distribution, and production.
Transnational Corporations
can control and monopolize the global market especially if it has huge pool of resources making it one of the most powerful economic actors in the world. The number of TNCs from north and west has business operations in the south where cheap labor and raw material are available. TNCs are very powerful economic institutions because of their global influence in investment and network distribution. Sometimes, TNC is being compared to states in terms of value and power.
Transnational Corporations
is designed to address and enhance the level of competitiveness of member economies in trade.
Free trade is the primary consideration of regional economic integrations.
Free Trade Area (FTA) is a trading bloc which involves the reduction of internal tariffs to zero of member economies while retaining different external tariffs. This policy aims to promote free flow of goods and services as well as to increase the volume of trade within the region.
However, there are criticisms on FTAs like the unfair trade practice. Unfair Trade is the conduct of trade by a business fir or government that violates and breaks the international trade agreements that are unjustifiable and discriminatory. Examples of common trade practices are issues relating to price, labor, wages, health, and environmental concerns that failed to meet the regulatory standards of the body.
formation of economic integration
