SS7E5, SS7E6, SS7E7

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Economy of the Middle East

• SS7E5, SS7E6, SS7E7

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SS7E5 The student will analyze different economic
systems.

• SS7E5. C. Compare and contrast the economic
  systems in Israel, Saudi Arabia, Turkey, and Iran

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Israel

• Has almost no natural resources or farmland
• Developed good relations with much of Western
  Europe and the United States
• Economy based on advanced technology

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Saudi Arabia

• Rich oil reserves
• Profit from oil allows them to buy most goods
  they are unable to produce themselves
• King and his advisors make most decisions about
  how and where to spend the oil profits
• Invested much wealth in technology and services
  which allows them to produce goods not usually
  found in a desert climate

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Iran

• Great oil wealth
• Command economy has not been efficient in recent
  times
• Shift to a more mixed economy
• Despite the oil wealth, the Iranian people do not
  share in the money

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Turkey

• Least economic freedom of these four countries
• In earlier times, the govt has controlled
  airlines, railroads, telephone, and television
• Recently the govt has loosened its hold on these
  industries
• Have allowed some private ownership
• More laws have been passed to protect business
  owners

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Summary Questions

1. The economies of Israel, Saudi Arabia, Turkey,
   and Iran could best be described as.market,
   command, mixed, or traditional?
2. How have the Israelis made up for their lack of
   natural resources?
3. Which industry does the govt of Saudi Arabia
   heavily control?
4. How has the king of Saudi Arabia used the profits
   from oil to help other areas of his kingdom?

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SS7E6. The student will explain how voluntary
trade benefits buyers and sellers in the Middle
East

• SS7E6.a. Explain how specialization encourages
  trade b/w countries

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Specialization

• Not every country can produce the goods and
  services it needs
• So they specialize in producing a good or
  service that they can produce most efficiently
• They can then trade that product for goods and
  services they need
• Way to build a profitable economy and earn money
  to buy what it needs
• Saudi Arabia specializes in the production of oil
  and gas.
• Israel specializes in agricultural technology
  even though they have a limited supply of farm
  land.

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Summary Questions

1. What is economic specialization?
2. Saudi Arabia specializes in the production of?
3. Israel specializes in?

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SS7E6. The student will explain how voluntary
trade benefits buyers and sellers in the Middle
East

• B. Compare and contrast different types of trade
  barriers such as tariffs, quotas, and embargos

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Trade Barriers

• Anything that slows down or prevents one country
  from exchanging goods with another
• Some protect local industries from lower priced
  goods made in other countries (keeps competition
  away)
• Some created due to political problems between
  countries

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Tariff

• Tax placed on goods when they are imported into
  one country from another
• Purpose is to make the imported good more
  expensive than the similar item created locally
• protective tariff-protects local manufacturers
  from competition

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Quota

• Different way of limiting the amount of foreign
  goods than can come into a country
• Sets a specific amount of particular goods that
  can be imported in a certain time frame

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Embargo

• When one country announces that it will no longer
  trade with another country in order to isolate
  the country and cause problems with that
  countrys economy
• Usually result of a political dispute
• 1973-OPEC decided to stop all sales of oil and
  gas to countries supporting Israel in the 1973
  Arab-Israeli war

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Summary Questions

1. What is a tariff?
2. What is a quota?
3. What is an embargo?

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SS7E6. The student will explain how voluntary
trade benefits buyers and sellers in the Middle
East

• c. Explain the primary function of the
  Organization of Petroleum Exporting Countries
  (OPEC)

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OPEC

• Created in 1960 by countries with large oil
  supplies
• Countries wanted to work together to regulate the
  supply and price of oil exported to other
  countries
• First five countries Kuwait, Iraq, Saudi Arabia,
  Iran and Venezuela
• Continue to decide how much oil they will produce
  and that determines the price on the world market
• Basic principles of supply and demand

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Summary Questions

1. Why was OPEC created?
2. What happens to the price of oil when OPEC
   countries decide to limit the production?
3. Where are most of the OPEC countries located?

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

• A. Explain the relationship b/w investment in
  human capital and gross domestic product

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Human Capital

• The knowledge and skills that make it possible
  for workers to earn a living producing goods and
  services.
• Companies that invest in human capital generally
  earn higher profits.
• Countries that invest in human capital generally
  have higher production levels of goods and
  services.
• This can lead to a higher gross domestic product
  than countries that do not invest in human capital

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Gross Domestic Product (GDP)

• Determined by taking the total value of all goods
  and services produced by a country in a single
  year.
• Wealthy countries generally have a much higher
  GDP than developing or underdeveloped countries.
• Countries in SW Asia have widely different GDP
  levels
• Countries that make it possible for workers to
  have education and training generally have higher
  GDPs.

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Israel

• Much access to education
• Economy depends on technology industries to make
  up for countrys lack of natural resources
• Many citizens work in industries related to
  medical technology, agricultural tech., mining
  and electronics
• Highly developed service industries
• GDP very high b/c of its investment in human
  capital

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Saudi Arabia

• Main industry is as an exporter of oil and
  petroleum products.
• Technology involved in oil industry requires
  education and much training.
• Also have modern communications and
  transportation systems
• Enormous building projects
• These economic factors require investment in
  human capital
• Saudi Arabia has a high GDP
• Some citizens still practice traditional economic
  activities like farming and herding

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Iran

• Worlds fifth largest producer of oil
• Oil industry requires well-trained and educated
  workers
• Have well respected schools and universities
• However, in recent years, Iranian government has
  not done a good job of regulating the parts of
  the economy that are under govt control.

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Summary Questions

• Why have the Israelis made a big investment in
  human capital?
• Why would the Saudi oil industry need a large
  investment in human capital?
• One of Irans biggest problems with their
  state-run oil industry is
• If a country does not invest in its human
  capital, how can it affect the countrys GDP?

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

• B. Explain the relationship between investment in
  capital and GDP

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Capital goods

• Factories, machines, and technology that people
  use to make other goods
• Can increase production, which can increase
  profit which can increase GDP
• Israel
• Invested heavily in capital goods
• Also invested heavily in technology used in
  defense industry
• Saudi Arabia
• Invested heavily in capital goods
• Especially in technology needed in oil,
  transportation, and communication
• Iran
• Has made great investments in capital goods
  related to oil production, technology and
  communication
• Also spends a great amount on technology for its
  defense industry

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Summary Questions

• What are capital goods?
• Israel has invested heavily in capital goods in
  all of the following areas EXCEPT..

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

• C. Explain the role of oil in these countries
  economies.

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Oil

• One of most important and valuable resources in
  the Middle East
• Most of the worlds industrial nations depend on
  a steady supply of oil and gas
• U.S. imports nearly half of all the oil it uses,
  almost 18 million barrels every day
• Over half of the worlds known supplies of oil
  come from countries in the Middle East

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Oil

• Israel
• Has practically no oil at all
• Economy depends more on technology than natural
  resources
• Saudi Arabia
• Has very few natural resources other than oil
• Very influential in world economy and OPEC
• The govt has modernized roads, schools,
  airports, and communication systems
• Iran
• Most valuable resource is oil
• 85 of countrys money comes from the sale of oil
  and petrochemicals
• 1/3 of population works in agricultural areas
• Political problems have led to economic
  difficulties
• Member of OPEC, therefore benefits by keeping the
  price of oil high in the world market

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Summary Questions

• Why are oil and gas such valuable natural
  resources?
• How much of the oil used by the U.S. has to be
  imported every day?
• How has the Saudi govt used its national wealth
  to change the country?
• How do Iran and Saudi Arabia benefit from
  belonging to OPEC?
• How has Israels lack of oil affected that
  countrys economy?

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

• D. Describe the role of entrepreneurship

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Entrepreneurs

• Creative, original thinkers who are willing to
  take risks to create new businesses and products.
• Willing to risk their own money (usually) to
  produce new goods and services in the hope that
  they will earn a profit.
• Only about 50 of all new businesses are still
  operating after three years
• Important asset to a strong economy