Unit II (B) Economic Goals  General  Business  Consumer  Labor

I) Modern Economic Goals A) Efficiency Accomplished by making more for less. Specialization – concentration on a single task or operation in the creation of a product. Also called “Division of Labor” Examples – Geographic (Florida, Northeast, Saudi, Far East) College Major (Engineering, Business Mgmt, Political Science? Liberal Arts?) Leads to:

B) Growth  Assuming Demand and Consumer Confidence: 1) Sales Increase 2) Consumption Increases 3) Profits Increase for companies and consumer. 4) Companies grow, jobs expand * Nation-wide, as population grows, so too must production: 0-1% = Recession1990’s = 5% avg. 3-4% = AverageIndus. Rev = 8-10% 5-6% = Good/Above

C) Global Interdependence  A trend as the world becomes a “smaller” place.  Nations/states are specializing in particular industries, and in turn becoming more dependent on other nations or regions to meet their needs.  Ex. Oil/OPEC  Member states likely have other economic needs (Saudi Arabia?)  It could be in the form of raw capital ($) or in commodities (foodstuffs).  Again Scarcity is a central theme.  Politics – can muddy the water of efficiency with Eco. Weapons such as Trade Sanctions ( IRAN)

` Globalization  International Thinking At Its Best! What is the truest definition of Globalization? Princess Diana's death.  An English princess with an Egyptian boyfriend  crashes in a French tunnel, driving a German car  with a Dutch engine, driven by a Belgian who was drunk on Scotch whisky,  followed closely by Italian Paparazzi on Japanese motorcycles;  treated by an American doctor using Brazilian medicines.  This is sent to you by an American,  using Bill Gates's technology,  and you're probably reading this on your computer,  that uses Taiwanese chips and a Korean monitor,  assembled by Bangladeshi workers  in a Singapore plant,  transported by Indian truck drivers,  hijacked by Indonesians,  unloaded by Sicilian longshoremen,  and trucked to you by Mexican illegals..... That is Globalization

1) Absolute Advantage vs Comparative Advantage  Youtube:  These theories tie in nicely with the explanation why countries are specializing more in a particular industry

2) World Trade Organization: 159 members a) Negotiates trade deals b) Settles trade disputes c) Encourages the free flow of traded items d) Establishing trade rules (Contracts) and maintaining transparency. Source of friction…. Why? Because there are differing standards of living in parts of the world….

OFFICIAL STATS (From WTO Stats)  FACT FILE Location:Geneva, Switzerland Established:1 January 1995 Created by: Uruguay Round negotiations ( ) Membership: 159 countries on 2 March 2013 Budget: 196 million Swiss francs for 2011 ($220millin U.S.) Membership Budget  Secretariat staff: 640 Head: Roberto Azevêdo (Director-General)  Functions: Administering WTO trade agreements Forum for trade negotiations Handling trade disputes Monitoring national trade policies Technical assistance and training for developing countries Cooperation with other international organizations

D) Related Terms  Developing Nation: due to a low standard of living and relatively lower level of industrialization….  Red = Graduate; Brt. Green = off radar

II) Business in the Economy A) Business decisions relate back to the three Eco. Questions (what, how, for whom) Reason – they represent a microcosm of both personal and national economic goals In a market economy, most of their decisions are derived from consumer wants/needs. Hairstyle

B) Forms of Business 1) Proprietorship 2) Partnership 3) Corporation See handout/hwk. for primary info C) Capital & Productivity Cornerstones of business success. Why?

 Given Managerial Skills and Demand, movement can be made toward productivity. Skill Samples: 1) Organizational6) Common Sense 2) Decision Making7) Professionalism 3) Ability to Delegate8) Fairness 4) Compromise9) Innovation 5) Communication10) Marketing

D) Productivity  Coupled with the Profit Motive (greed), they make up the primary use of capital.  The more efficient a production, revenue ($) increases, given demand.  Greater productivity leads to higher wages for employees, greater profits and potential expansion of product offerings, known as diversification.

Starbucks Logo Evolution….

III) Consumer in the Economy * Consumers vote with their wallets. A) Spending Decisions based on: 1) Income – money received through employment, exchange of property. 2) Wealth – any resource used to produce income. Valued possessions, assets (car, house) 3) Necessities – goods like food, shelter, or clothing needed by consumers.

4) Utility – satisfaction derived from a good or service. 5) Marginal Utility – the amount of satisfaction a consumer derives from consuming one additional unit of a good or service. Ex. Snickers Bars 6) Average Propensity to Consume: % of total disposable income people spend on goods and services. ?What happens to this % over time? 7) Fixed Expenses – permanent costs in budgets, will not change. Be careful !! mortgage, student loan, car payment, Lease payments: apartment, car, self-storage unit... Services contracts: cell phone service

B) Savings Decisions – based on: Average Propensity to Save: % of after tax income, which on average consumers save. 1) It is recommended that working adults save between 10-15% History (U.S)  1970’s/1980’s Americans saved 5-7%  1990’s – 1-3% saved  , Americans saved -1%.  (up to 1%) Reason?  2013 – 4% Consumer Advocates

Saving/Investments:  Stocks* Bonds  Banks/Credit Unions* I.R.A.  C.D’s* Bed Mattress Goal – to gain as much $ in interest as possible. Interest – payment for the use of capital ($) that can cost people (loan) or expand their income (investments)

IV) Labor in the Economy  Provides all human resources necessary in production  Wages are price paid for these resources and are directly impacted by supply and demand for skills, experience and expertise in a given field. Ex: Ditch Diggers vs Neurosurgeons

A) Wages Based on:  Derived Demand – demand for labor in a field that provides indirect utility. Mechanic  Productivity – amount of output per unit of input. Hard to measure at times… Ex: Quarts of Strawberries picked a per day.Vs. Ex: Number of Fixed Cars per day (?)

B) Methods of Evaluation:  Annual evaluation  Performance Review  Ratings System  Peer Observations  Merit/Commission  Self-Evaluation 1) Why so many forms? 2) How may they be helpful to employee? 3) How may they be used against employee?

C) Wages – Salary vs. Hourly  Often compared to White Collar vs. Blue.  Minimum Wage vs. Living Wage: Min. Wage began as a way to ensure at least reasonable standards of living were maintained…did it work.  Current Minimum Wage of NY:$8.00/hr $ $ $ $ $6.00??? $ – $7.25

Considerations  Salaried positions typically include overtime payments within the standard paycheck.  Hourly wage employees may have more overtime opportunities at 1 ½ or 2x rate.  Salaried employees tend to enjoy a greater benefits package (Health Insurance, Leave/Sick Time.)  Outsourcing is challenging some of the more traditional notions of pay rates

Unemployment  A variety of types: 1) Seasonal – based on the industry you work (tourism); climate related (farming); or even time of year (xmas retail shopping) 2) Cyclical – happens as part of the regular economic cycle ex. Stockbrokers during the Great Recession Lehman Brothers) 3) Structural – skills required for open jobs are not available (tech bubble busts in to real-estate bubble…..)

V) Outside Forces - Unions  An outgrowth of the Indus. Rev. designed to obtain greater pay, safer working conditions, and better hours. (A Girl’s Chance)  That largely remains the case today, although O.S.H.A. has removed many concerns over safety.

1) Union Organization youtube:  Union Shop – anyone may be hired, but must join within a certain time (6 months).  Agency Shop – requires employees to pay dues to the union, but do not have to join. (NY Schools)  Open Shop – membership and dues are open but not required.

2) Types of Unions A) Craft (Horizontal) – supports a specific type of work (painter, contractors) Ex. Plumbers local 422 Grades: Apprentice, Journeyman, Master B) Industrial (Vertical) – includes all workers within a plant regardless of job tasks. Ex. Coal Plant

3) Unions Today - Bargaining  As set forth in the 1935 Wagner Act, union reps will negotiate with owners on items of interest (pay/health insurance)  If this fails (rare) other tactics may be employed by both sides: A) Union: 1) Fact Finding – to seek out most accurate info on issues of importance in negotiations Ex. Average Prescription Card Costs. 2) Picket – raises awareness to employee plight. Public Relations 3) Strike – refusal to work. Rare, and controversial. Police? Writer’s? Bad P.R. Also, Wildcat/Sympathy

B) Management Tactics 1) Lockout – preventing employees from work. NHL, NFL. 2)Injunction – a court order that prevents a strike. It may be a neededjob. Or the costs from a strike may be very high. (Phila.) 3) Executive Order – may be issued ordering people to work. Usually to prevent national crisis. Ex. Bill Clinton Airlines

C) Compromise – the preferred path:  Arbitration – creates a binding agreement by a 3 rd party who both sides agree upon before discussions held. Sports $  Mediation – non-binding assistance in negotiations by a 3 rd party. A preferred method since it avoids risk. Ex. Oneida Land Claim Mediator Eventually, a Contract is signed, that highlights all terms of employment and payment.

4) Professional Organizations  A popular alternative to unions in a field that also is designed to protect their interests.  Done more through political action (well funded Lobbies) and literature than through bargaining, since many are self-employed.  Ex: AMA (American Medical Assoc) ADA (American Dental Assoc)

UNIT II Test – “Goals” of Groups  Multiple Choice Format (40)  Topics: 1) Labor Goals (Unions, wages, bargaining) 2)Business Goals (Types, pros/cons) 3) Consumer Goals (Protection h.o., Spending and Saving Choices, Global/Economic Goals 4) Supply + Demand (Principles of and Advertising; no graphing)