Scribd
Upload
11 views

IntrotoBusiness 02 EconEnvironment

The document discusses key economic concepts including scarcity, opportunity cost, division of labor, economies of scale, microeconomics, macroeconomics, planned and free market systems, demand, supply, equilibrium, business cycles, recessions, and depressions.

Uploaded by

chaudhary samava
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
11 views

IntrotoBusiness 02 EconEnvironment

The document discusses key economic concepts including scarcity, opportunity cost, division of labor, economies of scale, microeconomics, macroeconomics, planned and free market systems, demand, supply, equilibrium, business cycles, recessions, and depressions.

Uploaded by

chaudhary samava
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 22

Economic Environment

Introduction to Business
Economics is the study of how
humans make decisions in the
face of scarcity. Scarcity exists
What is when human wants for goods
and services exceed the
economics? available supply. People make
decisions in their own self-
interest, weighing benefits and
costs.
Opportunity Cost

Economists use the term opportunity cost to indicate


what must be given up to obtain something that’s
desired. A fundamental principle of economics is that
every choice has an opportunity cost.
Division of Labor

Division of labor - the work required to produce a good


or service is separated into tasks performed by different
workers.
Specialization - when workers or firms focus on tasks
for which they are well suited within the overall
production process.
Economies of Scale

Economies of scale - when the average cost of


producing each individual unit declines as total output
increases.

It is often most efficient to specialize and take advantage


of economies of scale and then trade.
What is Microeconomics?
Microeconomics focuses on the actions of individual
agents within the economy, like households, workers, and
businesses.
What is Macroeconomics?
Macroeconomics studies the economy as a whole. It
focuses on goals such as growth in the standard of living,
low unemployment, and low inflation.

Governments use monetary policy and fiscal policy to


achieve macroeconomic goals, such as lowering
unemployment and increasing economic growth.
Economic Systems

Economic systems determine:


1. What goods and services should be produced to meet
consumer needs?
2. How should they be produced, and who should
produce them?
3. Who should receive goods and services?
Planned Systems

In a planned system, such as communism


or socialism, the government controls the production
and distribution of goods and services.

In a true communist economy – or command economy -


there is no private property. Rather, everyone owns the
factors of production

In a socialist economy, there is some private property and


some private control of industry.
Free Market System

In a free market system, also known as capitalism,


business is conducted with only limited government
involvement. Competition determines what goods and
services are produced, how they are produced, and for
whom.

Even in free markets, governments will maintain the


rule of law, create public goods and services such as
roads and education, and step in when the market gets
things wrong (e.g. setting minimum wage,
establishing environmental standards)
Economic Systems and Globalization

More countries’ economies are evolving into a mixed-


economy which has characteristics of more than one
system.

The last few decades have seen globalization evolve as


a result of growth in commercial and financial networks
that cross national borders, making businesses and
workers from different economies increasingly
interdependent.
Demand
The law of demand states
that a higher price typically
leads to a lower quantity
demanded.

A demand curve shows the


relationship between
quantity demanded and
price in a given market on
a graph (right).
Shifts in Demand
Supply
The law of supply says
that a higher price
typically leads to a higher
quantity supplied.

A supply curve (right)


shows the relationship
between quantity
supplied and price on a
graph.
Shifts in Supply
Equilibrium

The equilibrium price and equilibrium quantity occur


where the supply and demand curves cross since the
quantity demanded is equal to the quantity supplied.
Surplus and Shortage
When the price is below
the equilibrium level,
excess demand or a
shortage will exist.
If the price is above the
equilibrium level, excess
supply or a surplus will
exist.
In either case, economic
pressures will push the
price toward the
equilibrium level.
Measuring the Health of the Economy

Economic Goal Economic Indicator


Growth gross domestic product (GDP)—the market value of
all goods and services produced by the economy in a
given year. If GDP goes up, the economy is growing; if it
goes down, the economy is contracting.

High Employment unemployment rate—the percentage of the labor force


that’s unemployed and actively seeking work. The
unemployment rate goes up during periods when the
economy is in decline and down when the economy is
expanding.

Price Stability The consumer price index (CPI) measures inflation by


determining the change in prices of a hypothetical basket
of goods bought by a typical household.
The Business Cycle

The business
cycle refers to
economy-wide
expansions and
contractions in
the level of
economic
activities around
a long-term
growth trend.
Recessions and Depressions

The National Bureau of Economic Research defines a


recession as “a significant decline in economic activity
spread across the economy, lasting more than a few
months, normally visible in real GDP, real income,
employment, industrial production.”

If the economy does not begin to expand again, then the


economy may be considered to be in a state of
depression.
Practice Question

What is usually the best time in the business cycle to

• look for a job?


• start a business?
• buy stock or property?

a) Trough/Recovery b) Expansion c) Peak d)


Contraction
Quick Review
• What is economics?
• What are planned and market economic systems and
how do they differ?
• What is the law of demand?
• What is the law of supply?
• What are market equilibrium, surplus, and shortage?
• How do economists evaluate the health of an economy?
• What are the four stages of the economy? How do they
impact business operations?

You might also like