E conomics and the Middle E ast

Economics and the Middle East October 21th to25th

Standard • Middle East: • SS7E5 The student will analyze different economic systems. • a. Compare how traditional, command, and market economies answer the economic questions of (1) what to produce, (2) how to produce, and (3) for whom to produce.

Command Economy • Command Economy: In a command economy, the central authority (government) is in charge and makes all economic decisions. The most important aspect of this type of economy is that all major decisions related to the production, distribution, commodity and service prices, are all made by the government or central authority.

Command Economy • What to produce – Whatever the government says to produce • How to produce – However the government tells you to produce • For whom to produce – For whomever the government tells you to produce (ideally the entire society)

Market Economy • Market Economy: In a market economy, consumers are in charge and make economic decisions by spending money on goods and services they need/want. In a market economy, national and state governments play a minor role. Consumers and their buying decisions drive the economy. The assumptions of the market play a major role in deciding the right path for a country’s economic development.

Market Economy • What to produce – Whatever consumers say to produce • How to produce – However the consumers tell you to produce • For whom to produce – For whomever the consumers tell you to produce

Traditional Economy • Traditional Economy: In a traditional economy, things are done as they have been done in the past (traditionally). The economic system in which resources are allocated by inheritance, and which has a strong social network and is based on primitive methods and tools. It is strongly connected to subsistence farming.

Traditional Economy • What to produce – Whatever ritual, habit or custom dictates • How to produce – However ritual, habit or custom dictate • For whom to produce – For whomever ritual, habit or custom dictate

Standard • SS7E5 The student will analyze different economic systems. • b. Explain how most countries have a mixed economy located on a continuum between pure market and pure command. Since no country has a pure command or pure market economic system, most economies combine aspects of both of these pure economic systems, albeit to different degrees. Real economies fall somewhere between the two extremes.

ECONOMY • Since no country has a pure command or pure market economic system, most economies combine aspects of both of these pure economic systems, albeit to different degrees. Real economies fall somewhere between the two extremes.

What is a mixed economy? • What is a mixed economy? A mixed economy blends components of two or more of the following economic systems to varying degrees: traditional, market, and command

Mixed Economy Most countries have a Mixed Economy. However, a Mixed Economy is not an economic system but rather a blending of two different types of systems.

STANDARD • SS7E5 The student will analyze different economic systems. • c. Compare and contrast the economic systems in Israel, Saudi Arabia, and Turkey.

ISRAEL (1) What to produce? • A large portion of Israel’s GDP comes from high tech manufacturing, financial services, and agriculture. • (2) How to produce? • Israel has substantial government ownership of business, but is gradually privatizing companies. • (3) For whom to produce? • The private sector produces goods and services for domestic and international markets based on the market price system.

Place on the continuum: Israel would fall slightly to the market side of center on the continuum (you do NOT need to memorize the exact number)

Saudi Arabia • (1) What to produce? • Saudi Arabia is the world’s leading producer of oil. The Saudi government continues to invest in industrial production. They are a leader in petrochemicals, mining, and refining. • (2) How to produce? • Over 95% of the oil industry in the country is operated by the government. Most other major industries have significant government involvement. • Saudi Arabia relies heavily on specialized labor from other countries. Estimates are that a third of the labor force falls in this category. • Since the 1980s, the Saudi government has been trying to increase private ownership of business and encourage more joint ventures with private foreign companies. • (3) For whom to produce? • One third of Saudi Arabia’s GDP is based on exports to other countries. (This is due to the economy’s reliance on the oil sector.)

SAUDI ARABIA • Since the 1980s, the Saudi government has been trying to increase private ownership of business and encourage more joint ventures with private foreign companies. • (3) For whom to produce? • One third of Saudi Arabia’s GDP is based on exports to other countries. (This is due to the economy’s reliance on the oil sector.)

Place on the continuum: Saudi Arabia would fall to the command side of center on the continuum.

Turkey • (1) What to produce? • Turkey has a diversified economy with large service, manufacturing, and agricultural sectors. • (2) How to produce? • Since the late 1980s, Turkey has gradually moved from a government directed economy to more private enterprise. • (3) For whom to produce? • One fifth of Turkey’s production is exported. The remainder is consumed by domestic consumers and the government

Place on the continuum: Turkey would fall to the left of Saudi Arabia and Israel on the market side of the continuum.

STANDARD • SS7E6 The student will explain how voluntary trade benefits buyers and sellers in Southwest Asia (Middle East). • a. Explain how specialization encourages trade between countries.

“Do what you do best; trade for the rest.” Specialization- Specialization occurs when one nation can produce a good or service at a lower opportunity cost than another nation. Specialization encourages trade and can be a positive factor in a country’s economy. For example, if a country specializes in oil, they can trade oil for a certain food that another country specializes in so that both countries benefit. iy

Over-Specialization Over-Specialization – Examples of over-specialization include one-crop economies and generally having a lack of diversification. This can negatively impact a region’s economy. What if a country over-specializes in oil and then runs out of oil? What if a country over-specializes in corn and then a scientific study comes out that says corn causes cancer? If something happens to the one crop or resource a country relies on then the country’s entire economy could potentially collapse.

STANDARD • SS7E6 The student will explain how voluntary trade benefits buyers and sellers in Southwest Asia (Middle East). • b. Compare and contrast different types of trade barriers, such as tariffs, quotas, and embargos.

Tariff • A tariff is a tax placed on goods that one nation imports from another. • Many nations use tariffs to protect their industries from foreign competition. • Tariffs provide protection by acting to raise the price of imported goods. • Thus, tariffs encourage domestic firms to increase their production, and consumers are forced to pay higher prices for the protected goods. • Can you think of an example? __________________________________________________ • ___________________________________________________________________________

Quota • A quota sets a limit on the amount of certain goods that can be imported into a country. • Import quotas offer another means of protectionism. • quotas tend to be more effective than protective tariffs, which do not always stop consumers who are willing to pay a higher price for an imported good. • Can you think of an example? __________________________________________________ • ___________________________________________________________________________

Embargo • Anembargo is an order designed to stop the movement of goods. • An embargo, issued by the government of one country, may restrict or suspend trade between that country and another nation. • A government may impose an embargo to hamper (make progress difficult) the military efforts of another government. • Sometimes a government imposes an embargo to express its disapproval of actions taken by another government. The embargo is intended to pressure the offending government to change its actions. • Can you think of an example? __________________________________________________ • ___________________________________________________________________________

Import quotas • Import quotas offer another means of protectionism. • These quotas set a limit on the amount of certain goods that can be imported into a country and tend to be more effective than protective tariffs, which do not always stop consumers who are willing to pay a higher price for an imported good.

Barriers to Trade • A tariff is a tax placed on goods that one nation imports from another. • Many nations use tariffs to protect their industries from foreign competition. • Tariffs provide protection by acting to raise the price of imported goods. • Thus, tariffs encourage domestic firms to increase their production, and consumers are forced to pay higher prices for the protected goods.

STANDARD • SS7E6 The student will explain how voluntary trade benefits buyers and sellers in Southwest Asia (Middle East). • c. Explain the primary function of the Organization of Petroleum Exporting Countries (OPEC).

OPEC OPEC – OPEC stands for the Organization of Petroleum Exporting Countries. The role of this organization is toinfluencethe price of oil on world markets. If OPEC wants the price of oil to increase on world markets, they will slow production of oil. If OPEC wants the price of oil to decrease on world markets, they will increase production of oil.

OPEC • You do not need to know all of the members of OPEC however you do need to know that not all oil producing nations are OPEC members, nor are all OPEC members Middle Eastern countries.

STANDARD • SS7E6 The student will explain how voluntary trade benefits buyers and sellers in Southwest Asia (Middle East). • d. Explain why international trade requires a system for exchanging currencies between nations.

EXCHANGE RATES • Exchange Rates - exchange rates provide a procedure for determining the value of one country’s currency in terms of another country’s currency. Without a system for exchanging currencies, it would be very difficult to conduct international trade. • Before people from different countries can buy or sell anything to each other, they have to solve a basic problem. • Buyers have to be able to change their money from their country's currency to the seller's national currency. This is called "foreign exchange."

EXCHANGE RATES CONT. • Each currency, whether it's the US dollar or the Haitian gourde, has a value in terms of other currencies. This is the "exchange rate." • Without a reliable supply of foreign exchange in each country, and without relatively stable exchange rates, world trade would drop drastically.

STANDARD • SS7E7 The student will describe factors that influence economic growth and examine their presence or absence in Israel, Saudi Arabia, and Iran.

What influences economic growth? • There are four factors that most influence economic growth in a nation. These are: • Land - Land provides the basic raw materials--vegetation, animals, minerals, fossil fuels--that are inputs into the production of goods (natural resources). • Labor - Labor is the resource that does the "hands on" work of transforming raw materials into goods. • Capital (2 kinds; human and physical – defined below) • Entrepreneurship – defined below

E conomics and the Middle E ast