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BCEN 1400 Introduction to Business

The Power of Economics. BCEN 1400 Introduction to Business. Economics. How society chooses to employ resources to produce goods and services and distribute for consumption Macro and Micro Macro: the nation’s economy as a whole Micro: the behavior of individuals in markets

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BCEN 1400 Introduction to Business

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  1. The Power of Economics BCEN 1400Introduction to Business

  2. Economics • How society chooses to employ resources to produce goods and services and distribute for consumption • Macro and Micro • Macro: the nation’s economy as a wholeMicro: the behavior of individuals in markets • Resources are limited

  3. Adam Smith • The Wealth of Nations (1776) • Assumptions: • People will work hard to see the fruits of their labor • Those who get wealthy will return the wealth back to society. • Freedom is vital to any economy (Capitalism) • People work for themselves, but somehow this gets translated into societal gain • “The invisible hand” – individual gain  benefits for all • Do people who make it big turn it back?

  4. What Is Capitalism? • Can own private property • Can own a business • Can compete freely and make business decisions, like producing what you want and pricing however you wish • Can live freely and make choices YOU create your future… • Creates classes of individuals; however.

  5. Review Questions • What are the two types of economics fields of study, and what does each study? • Who is Adam Smith? • What does the invisible hand do? • What about the United States’ economy is capitalist?

  6. Supply and Demand • Supply – upward sloping (firms supply more when prices are high) • Demand – downward sloping (people demand more when prices are low) • In the long run, they meet at equilibrium. This is the long-run market price.

  7. Types of Competition • Perfect • Many sellers, omniscient buyers, identical products • Really doesn’t exist • Monopolistic competition • Differentiating factors set many sellers apart (computers) • Oligopoly • Only a few sellers dominate market, different products (gasoline) • Monopoly • Only one seller exists for the product (utilities)

  8. Review Questions • When the price offered for each product is higher, suppliers will supply (more/less)? • When the price required to buy each product is lower, consumers will demand (more/less)? • What types of behaviors will suppliers show when there is a shortage in the market? • What is the equilibrium point?

  9. Review Questions • Is our local electric system a monopoly, or is it perfect competition? • Is the toy industry an oligopoly, or an example of monopolistic competition. • What is an industry that you can think of that is the closest to perfect competition you can imagine?

  10. Socialism • Most businesses should be owned by the government so that profits can be distributed equally • High tax rates • Often free education, free health care, less emphasis on work • Many highly aspiring people leave (brain drain)

  11. Socialist Countries Current socialist countries: China, Cuba, North Korea, Bangladesh, Laos, and Vietnam; Egypt, Guyana, India, Libya, Portugal, Sri Lanka, Syria, Tanzania, and Venezuela ; yet others exist with some socialist policies

  12. Communism • A special, more extreme type of socialism • The state makes most decisions and owns most businesses • State also practices social control (religion, jobs, residences) • Shortages often occur because government cannot successfully predict supply and demand

  13. Mixed Economies • Even the U.S. isn’t an example of pure capitalism! • Give me examples of the U.S. system that go against pure capitalism. • Mixed economies offer a middle ground wherein the poor are cared for, and the market determines supply and demand.

  14. Review Questions • Why does a brain drain occur in a socialist economy? • Why is it hard for entrepreneurship to occur in a socialist economy? • What factors of production are limited in a socialist economy? • What is the thing that socialist countries try to eliminate that does occur in capitalist economies? Is this good for a society?

  15. National Indicators • Gross Domestic Product (GDP) • All of the goods and services produced in our borders by U.S. and foreign firms • Gross National Product (GNP) • Unemployment – U.S. Recovering? • Consumer Price Index • Recent inflation rates:

  16. GDP and Future GDP Source: International Monetary Fund, 2009

  17. Consumer Price Index Over Time:Welcome to Inflation

  18. Business Cycles • Economic boom • Recession – two consecutive decreases in GDP • Depression – 10% or greater decline in GDP • Recovery

  19. Controlling Business Cycles • Fiscal policy – increased government spending and lowered taxes, in theory, will increase economic activity • Monetary policy – the Federal Reserve can stimulate the economy by lowering interest rates and increasing the money supply • Neither are really working well!

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