Unit 7 AP Notes

Key Concepts:

  • Sectors: categories the economy is divided into

    • Categorized by stage in production process or products/services they provide

  • Primary: extraction of raw materials (ag., mining, fishing etc.)

  • Secondary: processing of raw materials (manufacturing)

  • Tertiary: entertainment, tourism

  • Quaternary: business services (finance, insurance, banking, etc.)

  • Quinary: government, healthcare professionals, CEOS

(Consider cash value produced from one sector compared to another; explains why specific sectors are emphasized in an economy and why others are not)

Agriculture

  • Least valuable

  • Subsistence farming → common in LDCS → supports family + locals

  • Farming → commercial in MDCS → products sold and distributed globally

Commodity Chain

  • Commodity chain: small-scale family producers selling from farm/farmer’s markets → transnational supply networks → international customer base (Ex. tea production)

Manufacturing

  • Hallmark of economic development, factory-made products > agricultural + natural resource

  • Manufactured goods = farm products + natural resources → value-added processing

  • Durable goods VS. non-durable goods: divides production based on amt. of time in product use

  • Low-benefit services: labor force = hourly employees (receive little to none benefits e.g. PTO +health insurance)

  • High-benefit services: labor force = salaried (receive considerable benefits e.g. health, PTO, retirement reimbursements)

Deindustrialization

  • Deindustrialization: shifting away from manufacturing as the main source of economic production

    • Effect = millions of factory workers lost jobs + many old industrial cities suffered from the economic downturn

    • Manufacturing businesses turned to expensive manufactured goods (vehicles, heavy equipment + computing devices) to keep profits + investment up + keep workforce paid and employed

Understanding Why Services Are Important in America

  • Cheaper to offshore

  • Deindustrialization → investment value of each sector

  • Investors → looking to maximize their returns on investment (services are most valuable)

  • Natural resources → manufactured products = a massive amount of value

THE INDUSTRIAL REVOLUTION

  • Industrialization → rapidly transformed the global economy and lifestyle

Great Britain

  • Industrialization → start: second half of the 18th century

  • Contributions to Britain’s shift to an industrialized society: size + distribution of the population

  • Availability of coal and iron → rapid mechanization of the British industry (coal + iron = railroad *most important invention in the Industrial Revolution)

Effects of Industrialization

  • Major shifts in size + distribution of populations in surrounding European nations and the US in the mid-19th century

  • Technological advancements in manufacturing → concurrent innovations in agriculture → start of Second Agricultural Revolution

  • Mechanization in agriculture → reduced need for farm labor

  • Caused major shifts in family and class structures

  • Women were increasingly discouraged from joining the workforce → expected to be a housewife

Global Impact

  • Increase in productivity due to mechanization → turned countries into economic powerhouses

  • Economic crises followed explosive growth

  • Speed of “new imperialism” was in European Nations was exponential; able to colonize Africa and Asia due to tech advances

Measures of Development

Gross Domestic Product

  • Gross domestic product (GDP): $ value of all goods and services produced in a country in one year

    • GDP = GOODS + SERVICES

Gross National Income

  • Gross national income (GNI): $ value of all goods and services produced in a country, plus the $ value of exports minus imports

    • measures economic value

    • GNI = GOODS + SERVICES + (EXPORTS – IMPORTS)

    • Trade Surplus: (EXPORTS > IMPORTS) *adds value to economy

    • Trade Deficit: (EXPORTS < IMPORTS) *removes value from economy.

Per Capita Calculations

  • Gross national income (GNI) per capita: estimated income of a person converted to USD at currency exchange rates (modified form of GDP

    • GDP per capita = (GOODS + SERVICES) ÷ POPULATION

    • GNI per capita = [(GOODS + SERVICES) + (EXPORTS – IMPORTS)] ÷ POPULATION

  • Gross national income purchasing power parity (GNI PPP): estimate that takes into account differences in prices between countries

  • Human Development Index (HDI): measures level of development in a country based on social indicators + economic production

    • combines GDP per capita, the adult literacy rate, average level of education, and total life expectancy

  • Gini coefficient: measures the level of income disparity between the country’s richest and poorest population groups on a scale of 0 to 100

  • Gender-Related Development Index (GDI): same calculations as HDI but replaces GDP with income

KNOW THE THEORIES

Rostow’s Stages of Growth (Walt Rostow - 1950)

  • Countries go through 5 stages between agricultural and service based economies

  • Each country had some form of comparative advantage in international trade → economic development

  1. Traditional society:

  • Economy: Primary sector (agriculture, fishing)

  • Limited wealth; does not boost economic development

  • Little to no technical knowledge

  1. Preconditions for takeoff:

  • Starts investing the country’s wealth in infrastructure; roads, ports, electrification, + school systems → promotes economic development + international trade

  • Increased technical knowledge → stimulates economy

  1. Takeoff:

  • Shift to limited industrial exports; labor force shifts to secondary sector (manufacturing)

  • Technical experience is gained in industrial production and business management

  1. Drive to maturity:

  • Tech advancements diffuse throughout the country

  • Few people engage in agriculture; Majority of workers are educated + skilled

  1. Age of mass consumption:

  • Industrial trade economy → Consumer products dominate economy

  • Tech and education levels are high

  • Small primary sector workforce; agriculture is mechanized (no longer traditional)

    Negatives:

  • Does not take into account for barriers such as government corruption or capital flight

  • Assumes all countries progress smoothly and assumes all countries want to invest in trade and tech development

Dependency Theory

  • Dependency theory: most LDCS (as well as NICS) are dependent on factories, direct investment, and technology from MDCS to provide job opportunity and infrastructure

  • LDCS get stuck in a cycle of dependency on MDCS to pay for economic development

Free-Trade Agreements

  • Free-trade agreements → common way to improve international trade (EX: EU + NAFTA)

    • Ex: NAFTA removed tariffs between all 3 countries in 2001 → Mexico benefitted economically

Free-Market Reforms

  • Allows foreign companies to open factories/retail services in these countries

    • China established the SEZ in 1980 foreign firms allowed to build factories in port cities→

      • SEZs: foreign firms are given special tax privileges → incentivize trade

Wallerstein’s World Systems Theory (Immanuel Wallerstein - 1970s)

  1. Core - countries that are most developed + economically influential

    • holds significant cultural/military/economic dominance over the rest of the world

    • imports goods from periphery countries → takes advantage of cheap labor, raw materials

  1. Periphery - countries that are least developed

  • Weak government, inequality, dependent economies; influenced and exploited by core countries

  1. Semi-periphery - middle of core and periphery countries

    • Can be both core and periphery → asserts dominance over periphery countries/influenced and exploited by core

Industrial Location Theory (Weber’s Least Cost Theory - Alfred Weber 1909)

  • In terms of location, manufactured goods can be classified into two categories based on the amount of input in relation to product output:

  1. Weight-losing, or bulk-reducing, manufacturing - large amount of input (seafood packaging, lumber mills, smelting, industrial location is very close in proximity to resource location) → reduced to final product that weighs less/less volume than input

  2. Weight-gaining, or bulk-gaining, manufacturing - number of inputs that are combined to make final product (industrial location is farther from resource location, but closer to consumers to minimize delivery costs) → gains weight/bulk/volume in production process

The Geography of Supply Chains

  • Supply chain - exists when parts are assembled into components that are then joined together to create larger finished products (automobiles)

  • Fordist production (Fordism): relied on one company owning all aspects over production

  • Post-Fordism: companies became dependent on large network supply chains

Retail Location Theory

  • Spatial margin of profitability: area where local demand for a service creates revenue higher than the local costs of doing business

    • Used to define these areas of maximization

Service Location Theory

  • Footloose industry: businesses locations are not tied to resources/transportation/consumer locations

Agglomeration

  • Agglomeration economies: exists where firms with related or similar products locate together in clusters or regions

  • Deglomeration: occurs when a location is overloaded with similar firms and services → some firms will seek alternative locations in order to expand

KNOW THE MAPS

Industrial Regions

  • North America:

    • American Industrial Belt or “Rust Belt” following deindustrialization

    • Canadian Industrial Heartland or Canada’s “Main Street”

    • Piedmont Industrial Region

  • Europe

    • British Midlands

    • Ruhr Valley

    • Northern Italy or the “Third Italy”

  • Asia

    • Japan

    • Korea

    • Taiwan

    • China

Economies of Scale

  • Economies of scale: achieved when producers expand their operations, incur lower per-unit costs in the process

  • Economies of scope: in which companies benefit from the increase in the number of different products under a larger brand name

Women in Development *important topic

  • Women work more hours (unpaid/paid labor) than men (exception - Anglo America, Australia)

  • Women in the paid workforce are increasing in numbers in LDCS and NICS

  • Women’s social roles are changing - maternity benefits, economic opportunities