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1
Overview
The Classification of Economic Activity and Economies
Primary Activities: AgricultureOther Primary ActivitiesTrade in Primary Products
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Economic decisions …
Economic decisions may be constrained byCultural considerationsLevels of technological developmentPolitical decisions
Categories of ActivityTypes of Economic Systems
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Economic Systems
Subsistence economyLimited need for markets
Commercial economiesMarket economies
Supply and demand
Planned economiesThe old Soviet style
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Supply, Demand, and Market EquilibriumFigure 10.19
10-9
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Categories of Economic ActivityFigure 10.2
10-1
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Percentage of Labor Force in AgricultureFigure 10.6
10-3 FAO and World Bank
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Sectoral Allocation of the U.S. Labor ForceFigure 10.28
10-15
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Share of Services in Gross Domestic ProductFigure 10.29
10-16 World Bank, World Development Indicators.
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Primary Activities: Agriculture
Subsistence Agriculture Production barely enough for family/extended
family Limited trade
Two types of subsistence agriculture Extensive Subsistence Agriculture
Large land areas and minimal labor input per acre
Intensive Subsistence Agriculture Cultivation of small land holdings through high labor input
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Extensive subsistence agriculture
Two important typesNomadic herding
The images of tall herders in Sub-Saharan AfricaShifting cultivation
Also referred to as slash and burn, or swidden Initial yields are high, but later plantings yield little
Ester Boserup theorized that population increases necessitate increase in technology Resulting in conversion from extensive to intensive
subsistence ag.
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Subsistence Agricultural Areas of the WorldFigure 10.7
10-4
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Intensive Subsistence Agriculture
Nearly half the world survives on this economic system Predominantly in
the rice belt
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The Green Revolution
Refers to the phenomenal growth in agriculture yields Introduction of better technology
Seeds, fertilizers, management
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Commercial Agriculture
Increase or decrease of output depended on pricesRole of government
Is there a pattern to the location?The contribution of von Thunen
Distance from the market mattersTransport costs influence location
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Transport Gradients and Agricultural ZonesFigure 10.12
10-5
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Commercial Ag.
Extensive Large scale farming
High use of capital Low levels of labor use
Intensive Inputs per acre are much higher than in extensive
Closer to urban areas Fruits, vegetables, dairy
Truck farming What’s “truck” got to do with it?
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Commercial Ag.
Special crops Such as grapes Plantation crops
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Livestock Ranching and Special Crop AgricultureFigure 10.14
10-7
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Generalized Agricultural Regions of North AmericaFigure 10.13
10-6 U.S. Bureau of Agricultural Economics; Agriculture Canada; Mexico, Secretaría de Agricultura y Recursos Hidráulicos.
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Food Resources
Expansion of Cultivated AreasIncreasing YieldsIncreasing Fish Consumption
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Areas with Naturally Fertile Soils
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Trends in World Food & Per Capita Production
Data from the Food and Agriculture Organization, the World Resources Institute, and U.S. Department of Agriculture.
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Comparison of Per Capita Food Production
Data from World Resources Institute.
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World Grain Yield Per Hectare
U.S. Department of Agriculture as reported in Lester R. Brown, et al., Vital Signs, 2000. New York: Norton and Worldwatch Institute, 2000.
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Other Primary Activities
Fishing and ForestryA common issues
Are we exceeding the maximum sustainable yield?
Mining and QuarryingLocation affected by
Quantity availableRichness of the oreDistance to the marketsLand and royalty costs
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Terms
ResourceNaturally occurring exploitable material
Two types:Renewable Resources
Can be used over and over againRegenerates faster than they are used
Nonrenewable ResourcesOnly a finite amount existsOnce used, it is gone
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Terms
Reserves are resources that are Known and Available with current technologies and at
current prices.Projected reserves:
Based on expected future prices and technologies
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When Reserves are Exhausted ...
What if the estimates are incorrect?New exploration techniques are improving
the scope and success of offshore drilling operations, adding to the world's known resources.
For example, in 1965, the petroleum industry's drilling capabilities limited offshore wells to waters less than 300 feet deep.Now ultra-deep drilling at more than 5000 feet is
no big deal!
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Classification of Natural Resources & Proved Reserves
General Classification of Resources by the U.S. Geological Survey.
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Abundance, by Weight, of Elements in the Earth’s Crust
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Leading Producers of Selected Minerals
Data from World Resources Institute.
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U.S. Reliance on Foreign Supplies of MineralsFigure 11.25
Data from U.S. Geological Survey, U.S. Department of the Interior.
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Concentration of Copper to be Economical
Data from the U.S. Bureau of Mines, U.S. Department of the Interior.
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Oil Supply
Resource unevenly distributedFew major suppliers
Saudi Arabia has largest reservesWorld supply controlled by the OPEC
40% of the world’s productionGroup is able to ‘fix’ crude oil pricesLimiting supply automatically increases
price
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Oil Demand
Modern economies need oilConsumption growth rate very high in the
fast growing less developed countriesDeveloped countries consume most
The United States is the leading consumer of petroleumAlmost a third of the world’s production
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Leading Producers and Consumers of Oil
(a), (b) Data from The BP Amoco Statistical Review of World Energy, 2000.
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Shares of Proved Oil Reserves, January 1, 2000
Data from The BP Amoco Statistical Review of World Energy, 2000.
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Coal
Typically consumed in the country where it is mined
Deposits found all over the EarthUnattractive because:
Sulfur and CO2 emissionsMining complicatedLogistics of transportationNot adaptable for mobile units
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Major Coal Basins
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Coal
Coal-based power plants invariably located close to where coal is foundTransporting coal is a waste on a per Btu
basisBtu stands for British Thermal Unit, which measures the energy needed to raise the temperature of one pound of water by one degree Fahrenheit
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Natural Gas
Natural gasAs petroleum becomes more expensive,
NG becomes a viable alternativeRussia has largest NG reservesLogistical problems with transporting NG
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Proved Natural Gas Reserves, January 1, 2000
Data from The BP Amoco Statistical Review of World Energy, 2000.
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International Crude Oil Flow by Sea, 1999
The BP Amoco Statistical Review of World Energy, 2000. Used with permission.
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Copyright © The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Worldwide Trade Flows of Natural Gas, 1999
Data from The BP Amoco Statistical Review of World Energy, 2000. Used with permission.
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Go Nuke?
Nuclear power was thought to be THE solution to the growing need for energy
Growth of nuclear power in the 1960s and 1970sDrive ended with the infamous
Three Mile Island incidentA definite no-no after the Chernobyl
disaster
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Producers and Consumers of Nuclear Energy, 1999
Data from The BP Amoco Statistical Review of World Energy, 2000.
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Renewable Energy Resources
BiomassWood Waste
Hydroelectric PowerSolar PowerOther Renewable Energy Resources
Geothermal EnergyWind Power
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Hydropower
Water is a renewable source of energyUnless we screw up
things really bad :-(Not a major source of
world’s energyAbout one percent at a
global levelBut may be significant in
smaller regionsPacific Northwest, for
instance
Oregon, 1999
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Access to Raw Materials
Easy access, of course, reduces transportation cost on the input side
This importance decreased over time:Transportation costs have decreasedImprovement in manufacturing techniques
mean fewer raw materials than used beforeMore important is access to components
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Urbanization Economies
These are the cost savings from a spatial concentration of plants in the same urban areaThanks to
availability of labor, infrastructure, services, …
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Market Access
Access to the marketA ‘final’ product needs to be taken to the
marketIf an intermediary product
Which will feed into the production of another productDynamics of just-in-time manufacturing, etc.,
come into play
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Business Climate
Some places are considered more “pro business” than othersLow tax levelsLimited regulation, etc.Labor not a strong political forceSubsidies from government, such as
Low interest loans, lower taxes, ...
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Cost of Labor
As mentioned earlier, tradeoff between cost of labor and productivityLow wage rate alone does not determine
location of manufacturingTechnically, labor migrates where it is
in excess to where it is in demandExcess reflected in lower wages
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Cost of Labor
But, this migration does not always happenPeople have inertia similar to industrial
inertiaPersonal and family investmentRely on welfare policies
Results in regional variations in the cost of labor
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Multinational Corporations (MNCs)
These are companies whose operations are based in a number of countriesPractically all the major companies in the
US are examplesOperations are distributed in order to:
Make use of local factor advantagesBe closer to the market
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Multinational Corporations (MNCs)
Increase employment in “host” countries
Increase the host country’s output and exportsHowever, critics contend that MNCs take
away more from the country than they bring in
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Solectron, a Fortune 500 companyand one of the largest contract manufacturers, operates in 60 locations around the world
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