Chapter 3 Economic Environment of Business ©2008 Thomson/South-Western

Chapter 3 Economic Environment of Business Bell Ringer: Read Reality Check on page 52 – “Hard Work Pays Off” Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Lesson 3.1 Economic Wants Goals Describe economic concepts that apply to satisfying economic wants. Explain the role of capital formation in an economy. Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Economics Economics — body of knowledge that relates to producing and using goods and services that satisfy human wants Economic wants — desire for scarce material goods and services Noneconomic wants — desire for nonmaterial things that are not scarce, such as air, sunshine, and friendship Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Economic Wants Satisfying our economic wants Utility — form, place, time, possession Factors of production — natural resources, labor, capital goods, entrepreneurship Capital formation Capital goods — goods needed to produce consumer goods and services Consumer goods and services — goods and services that directly satisfy people’s economic wants Chapter 3 Economic Environment of Business

Which of the following are economic wants? Golf clubs Income Tax Help A peaceful walk in the park Lunch at the finest restaurant in town Answer: A, B, and D Chapter 3 Economic Environment of Business

Utility — form, place, time, possession Utility is the ability of a good or a service to satisfy a want. In other words, a good or a service that has utility is a useful good or service. Something is not useful, however, unless it is available for use in the right form and place and at the right time. As a result, four (4) types of utility exist: Form utility, place utility, time utility and possession utility. Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Types of Forms Form Utility – created by changes in the form or shape of a product to make it useful. Example: Is the swimsuit you desire to buy available in a particular fabric or style? Place Utility – created by having a good or service at the place where it is needed or wanted. Example: Is the swimsuit you desire available in a nearby store where it can be purchased? Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Types of Forms Time Utility – created when a product or service is available when it is needed or wanted. Example: Is the store open when you are ready to buy and use your swimsuit? Possession Utility- created when ownership is a good or service is transferred from one person to another, buy may also occur through renting or borrowing. Example: Is the swimsuit available at a price you can afford and are willing to pay? Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Factors of Production 4 factors of production Land (natural resources) Labor Capital goods Entrepreneurship Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Capital Formation Capital Goods The production of capital goods such as buildings, equipment. Consumer goods and services Goods and services that directly satisfy people’s economic wants. Chapter 3 Economic Environment of Business

Which of the following are examples of capital goods? A plumber buys a device that aids in replacing broken well pumps for rural customers. A manufacturer buys robots that will help it make cars faster. A sales person buys a new suit to wear when selling his firm’s manufactured products Answer: A and B Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Activity Create a list of capital goods and a list of consumer goods on the board WB 3A & 3B on page 20 Assessment on page 56 Answer 1 thru 4 Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Bell Ringer: Each nation decides whether to have a market, command, or mixed economic system. These same nations may change economic systems from time to time. Can you name any countries that have changed their economic systems in recent years? Russia, Eastern European countries, which shifted from command to market economies Chapter 3 Economic Environment of Business

Lesson 3.2 Economic Systems Goals Discuss three economic systems and three economic-political systems. Explain why a business considers the economic-political system of a country. Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Economic Systems Economic system — organized way for a country to decide how to use its productive resources; that is, to decide what, how, and for whom goods and services will be produced Chapter 3 Economic Environment of Business

Types of Economic Systems Market economy — individual buying decisions in the marketplace determine what, how, and for whom goods and services will be produced Command economy — central planning authority, under control of government, owns most of the factors of production and determines what, how, and for whom goods and services will be produced Mixed economy — aspects of a market and a command economy are used to make decisions about what, how, and for whom goods and services will be produced Chapter 3 Economic Environment of Business

Types of Economic-Political Systems Capitalism — private citizens are free to go into business for themselves, produce whatever they choose, and distribute what they produce Socialism — government controls the use of the country’s factors of production Communism — all or almost all of a nation’s factors of production are owned by the government Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Capitalism Supply and demand provide environmental pressures. Those that best "fit" that environment survive and maintain the rules/laws. Those that can't/don't thrive in the system, and otherwise lack participation Successful capitalistic systems tend to be open and competitive. Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Socialism All members of the economy share benefits, regardless of their economic value to the system. Successful socialistic systems depend on sufficient resources for the entire population. Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Communism All members of the economy share both work and benefits. Those that do not provide their share of effort and resources to the system are culled. A healthy communistic system results in a cooperative society. Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Question An organized way for a country to decide how to use its productive resources is called Economic system Political system economic-political system Political economy Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Question Jax lives in a country where only individual buying decisions in the marketplace determine what, how, and for whom goods and services will be produced. Jax lives in a country that has primarily a Market economy Command economy Socialist economy None of the above Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Think Critically Describe why most countries can be seen as having a mixed economy. Describe the goals of privatizing government services. Chapter 3 Economic Environment of Business

Lesson 3.3 Fundamentals of Capitalism Goals Describe why private property is important to capitalism. Describe how prices are set in a capitalistic system. Chapter 3 Economic Environment of Business

Fundamentals of Capitalism Private property Profit Price setting Demand Supply Competition Income distribution Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business SUPPLY AND DEMAND Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Question Items of value that individuals have the right to own, use, and sell are know as Public goods Product utility Private property All of the above Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Question Explain how supply and demand help determine the price of goods and services. Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Activity: Search Hot Shot Business or go to ….. http://esg.itd.cnr.it/kcfinder/upload/files/Hot%20Shot%20Business(1).pdf Select a business and open it. Run your business for 6 virtual weeks, track you progress for each week. http://www.bing.com/search?q=lemon+aide+stand&src=IE-TopResult&FORM=IETR02&conversationid= Chapter 3 Economic Environment of Business

Lesson 3.4 Managing the Economy Goals Explain how economic growth can be promoted and measured. List basic economic problems that exist and state what government can do to correct the problems. Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Managing the Economy Promoting Economic Growth Increase the number of people in the workforce Increase the productivity in the workplace Increase the supply of capital goods Increase sales to foreign countries Decrease the purchase of goods and services from foreign countries Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Managing the Economy Measuring economic growth Gross domestic product (GDP) Consumer Price Index (CPI) Index of leading economic indicators Employment Retail sales Personal income and consumption http://www.youtube.com/watch?feature=endscreen&v=hy-YXhiPpEo&NR=1 http://www.youtube.com/watch?v=8JDijKF_h1g Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Managing the Economy Identifying economic problems Recession Inflation Correcting economic problems Business cycles: expansion, peak, contraction, trough Depression Chapter 3 Economic Environment of Business

Business cycles are irregular in length and in severity. Expansion – Modest rise in GDP, profits and employment Peak – Growth reaches its highest level, as do profit and employment Contraction – Growth begins to decline, as does employment Trough – Lowers point of the cycle, with increased upemployment Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business CPI GDP http://www.youtube.com/watch?feature=fvwp&v=hTWPrWmPJS0&NR=1 Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Questions 3.4 Assessments on page 74 Discussion: What are some of the indications that an economy may be heading for a recession? Study Guide Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Activities Study Guide Ch. 3 Chapter 3 Economic Environment of Business

Chapter 3 Economic Environment of Business Games http://www.funnylishus.com/index.php?games=Beach_Resort&safe_mode=on http://www.primarygames.com/socstudies/lemonade/index.htm Chapter 3 Economic Environment of Business