Your One-Day Crash Course! Economics Your One-Day Crash Course!

Today’s Objective Identify basic micro and macro economic concepts. Supply & Demand Economic Indicators Business Cycle Economic Cycle

Supply & Demand

What is it? SUPPLY DEMAND the number of goods that producers are willing to SELL at a particular price the number of goods that consumers are willing to BUY at a particular price

Law of Supply As price increases, the amount producers are willing and able to produce will also increase. P3 P2 Supply = Same direction P1 Q1 Q2 Q3

Think About it… Name something that is currently in high supply & low demand.

Law of Demand As price increases, the amount that consumers are willing and able to pay will decrease. P3 P2 Demand = The arrows move in different directions! P1 Q1 Q2 Q3

Think About it… Name something that is currently in low supply & high demand.

Graphing Equilibrium – supply and demand are equal ** point of max. profit Shortage – demand exceeds supply Surplus – supply exceeds demand D S P3 P2 Equilibrium is the goal because it is the point of maximum profit for a business. P1 Q1 Q2 Q3

Effects on the Economy Seller! If there is a shortage, this means that there is less supply from producers than there is demand from the consumer. Who has more control over the market? The buyer or the seller? If there is a surplus, this means that there is more supply from producers than there is demand from consumers. Who controls the market? Seller! Shortage – seller’s market Surplus – buyer’s market Buyer!

REVIEW Define supply & demand. Law of Supply Law of Demand Parts of a Supply & Demand graph Seller’s Market vs. Buyer’s Market

Graphing Worksheet

Economic Indicators

How do you measure up? Student performance is measured by: GPA SAT Class Rank Baseball performance is measured by: Batting Average Strikeouts

Economic Indicators Economic indicators are figures used to measure a country’s economic performance. We measure things like: how much a country produces whether a country’s economy is growing how a country’s economy compares to others

Gross Domestic Product GDP is the total market value of all goods & services produced in a country in a given year. Released the last day of each quarter (reflects the previous quarter) Key: look for the growth rate of GDP (typically 2.5 to 3 % each year) The U.S. economy typically grows around 2.5 to 3 percent per year. LAGGING Leading – average hours manufacturing, etc.

Measuring the GDP One of the most important indicators of economy’s status The U.S. has a very high GDP as compared to other countries. Examples Canada: $1.279 trillion North Korea: $40 billion China: $8.748 trillion U.S. – #2 in world China - #3 in world Canada – 15 in world N. Korea - #96

What GDP Tells Us… Changes in GDP show whether the economy is growing or slowing Commonly used to gauge a country’s standard of living

Inflation Rate Inflation is a general increase in the price of goods & services. Measured by the Consumer Price Index (CPI) Released at 8:30 a.m. around the 15th of each month (reflects previous month) Measures the change in the cost of a bundle of consumer goods & services Prices are measured by taking a sample of prices at different stores Used to adjust the annual changes to Social Security payments LAGGING

What causes inflation? Supply < Demand Could result from: War Price of imports Too much money in circulation War – scarce resources are transferred to the war effort, which means there is even less for consumers to buy Price of Imports – increases in cost of raw materials, production expenses, salaries, etc. Circulation – too much spending

What Inflation Tells Us… Indicates that the cost of living is getting more expensive Most people usually get a 2-3% pay raise each year to offset an increase in the cost of living

Purchasing Power of the Dollar Worksheet

The Price of Gas (per gallon) Worksheet

Unemployment Rate Unemployment measures the number of people who are able & willing to work but cannot find work. Shows whether the economy is picking up or slowing down Released on the first Friday of each month Includes number of new jobs created, average hours worked per week, average hourly earnings LAGGING Leading – number of weekly unemployment claims

Unemployment

Retail Sales Index Measures goods sold within the retail industry, from huge chains to small local stores Released around the 12th of the month Does not include money spent on services Shows if consumers are spending or saving

In Summary… What is the purpose of economic indicators? What is GDP? What does it tell us? What is the inflation rate? What does it tell us? What is the unemployment rate? What does it tell us? What is the Retail Sales Index? Which indicators are lagging? Which are leading?

…the economic roller coaster! The Business Cycle …the economic roller coaster! Distribute: note guide!!

The Business Cycle Economies naturally go through ups & downs. The business cycle is the rise and fall of economic activity over time. In the United States… 1930s, 50s, 70s, 2000s characterized by a drop in economic activity & rise in unemployment Slumps followed by new waves of increased productivity and increased GDP The economy may be influenced by war, foreign competition, changes in technology, changes in consumer wants, etc.

Stages of the Cycle

Prosperity Also known as the “peak” Higher wages, more jobs available, higher demand for goods/services Unemployment is low, GDP is high People are spending!

Recession Economic activity slows down – less production of goods, downturns in industry GDP decreasing, unemployment increasing People are starting to save!

Depression Also known as a “trough” Deep recession that lasts for years and affects the entire economy Unemployment is high, GDP is low Government starts trying to “stimulate” the economy People are saving!

Recovery Also known as “expansion” Rise in business activity after a recession or depression Innovation occurs – businesses start bringing out new products & services Unemployment decreasing, GDP increasing

Entrepreneurs Who Rose from the Ashes Many of today’s Fortune 500 companies came from recessions or depressions…

General Motors The Panic of 1907 William C. Durant High school drop-out working as a manager of Buick in Detroit Acquired Oldsmobile, Cadillac, Pontiac Launched Chevrolet (later joined GM in 1917)

Playboy Enterprises Recession of 1953 Hugh Hefner Former employee of Esquire who quit when his boss refused to give him a $5 raise Designed his own magazine with the help of his friends

Sirius Satellite Radio Early 1990s Recession Robert Briskman Former NASA engineer COO at Geostart (satellite messaging company) Figured out how to broadcast digital radio signals via satellite Merged with XM Satellite Radio in 2008 to provide commercial-free radio 24 hrs/day

What are the four stages of the business cycle? REVIEW What are the four stages of the business cycle? How is each stage characterized by economic indicators? GDP? Unemployment? Spending or saving?

The Effect of Economic Cycles

Who is Particularly Impacted? While the economy as a whole is negatively impacted by economic cycles, certain companies and industries are particularly sensitive to overall changes.

Durable Goods People tend to cut back on the purchase of durables, as the ones they already have can last through the recession. Manufacturers of durable goods like cars, appliances, and electronics are among the most impacted. Durables usually benefit the most from booms. As disposable income increases, consumers are likely to go out and buy a new car or iPod.

Transportation GM, Ford, Chrysler and other car companies are significantly impacted by recessions. Consumers put off buying new cars or purchase less expensive models. United Airlines & British Airways are leading airlines that suffer in recessions. FedEx & UPS experience less volume in mailed packages during recessions.

Manufacturing Whirlpool and Sears are home appliance manufacturers subject to decline in demand during recessions. Demand for appliances is tightly linked to new home sales, which slow during recessions.

Construction Home Depot & Lowe’s are home improvement retailers. Performance is correlated to the house market, which declines during recessions.

Other Industries Investment Services Hotels Home Security Merrill Lynch Morgan Stanley Goldman Sachs Group JP Morgan Chase Hotels Home Security Luxury Commodities (jewelry like Zales) Advertising Firms

Who is Less Impacted? Certain goods are relatively protected from the impact of economic cycles. Goods that have a relatively inelastic demand with respect to income are generally shielded. For example, no matter how bad the economy gets, people have to eat and will continue to purchase food. This is particular true for staple foods like bread.

Who is Less Impacted? Food Manufacturers & Retailers Safeway Wal-Mart Pepsi Kraft Addictive Substances (tobacco) Medicine & Medical Equipment Utilities

REVIEW What are durable goods? Which industries are most significantly impacted by economic downturns? What is inelastic demand? Which industries are relatively unaffected by economic rises or falls?

Supply & Demand, Economic Indicators, Business Cycle, Economic Cycle Economics in a Day! Supply & Demand, Economic Indicators, Business Cycle, Economic Cycle