Module 7: Economic and Socioeconomic Forces IB-300

GNI

• The total value of all income generated by the residents of a nation, including both the domestic production of goods and services and income from abroad

• companies prefer GNI because it encompasses more information (takes into account the flows of foreign income and investments)

GDP

• the total monetary value of all goods and services produced within a nation

Purpose of economic analyses

to assess the overall outlook for the economy and the impact of economic changes on the firm

Impact of economic forecast on firm’s functional areas

Ex: Suppose an increase in employment is forecasted

• it would cause most marketing managers to revise their sales forecasts upward

• in turn requiring that production managers increase production

Different categories of countries based on levels of national economic development

developed economies, developing economies and emerging market economies

Developed economies

• A classification for high-income industrialized nations, which have high living standards and the most technically developed infrastructures

Developing economies

• a classification for the world’s lower-income nations, which have less technically developed infrastructure and lower living standards

Emerging market economies

• developing economies with per-capita incomes in the low to middle range

Underground economy

• the part of a nation’s income that, because of un-reporting or under-reporting is not measured by official statistics

• includes undeclared production of legal and illegal goods and services their corresponding activities (ex money laundering and concealed income in barter)

What is purchasing power parity (PPP)

• a means of adjusting the exchange rates for two currencies so the currencies have equivalent purchasing power

Purchasing power parity example:

What can a Thai customer buy with 170,766 baht GNI per capita, compared with a US customer with US $53,670 GNI per capita?

Suppose the current exchange market rate is 31.8 baht = US $1

Ans: US $5,370

(170.766/31.8)

Private Consumption: What is disposable income?

after-tax personal income

Private Consumption: discretionary income

amount of income left after paying taxes and making essential purchases

Private Consumption: Indicators of Personal Consumption

• ownership of goods

• consumption of key materials

Dimensions/indicators of the economy

economic growth rate, income distribution, units labor costs, private consumption, internatioal debt

Dimensions/indicators in socioeconomic enviornment:

Total population, age distribution, population density and distribution