Market Place where goods and services are bought and sold Where sellers and buyers exchange goods and services Based on SUPPLY and DEMAND

Market Price The price determined by the market Price paid by the buyer and accepted by the seller

Perfect Competition Buyers and sellers are numerous and well informed Product provided at the LOWEST possible price in order to maintain demand Market price is beyond control of buyers and sellers

Monopoly Characteristics: Single seller of a good or service No close substitute Price maker Blocked entry Government regulated monopolies Government allows natural monopolies (Public services: gas, electricity, water)

Oligopoly Few firms dominate the market. Products offered are substitutes or identical Result of raising prices: increase demand for substitute OR encourage people to pay the higher price for the brand they prefer

MERGERS Combination of two or more companies to form a single business

Horizontal Merger A merger between two competitors

Vertical Merger Supplier buys a reseller or vice versa. Two companies have a buyer-seller relationship A business at a different level/stage of the product delivery process buys another firm

Conglomerate Companies in unrelated businesses join together Not competitors. Not part of the same supply chain

The Business Cycle Predictable long-term pattern changes in the national economy Ups and downs of the economy

The Business Cycle

Phase 1-Expansion/recovery Economy going up People buying more goods and services Businesses producing more goods and services Businesses hiring more employees

Phase 2-Prosperity/Peak/Boom Boom period- economic activity at peak Businesses working and selling at full capacity

Phase 3-Contratcion Economy starting to slow down People buying fewer goods and services Businesses cutting back production Business laying off workers Some forced out of business

Phase 4-Recession Production at lowest point High unemployment Reduced spending on goods and services

Recession and Depression Slow down in economic activity Real GDP goes down for 6 straight months Average recession lasts about 1 year Severe economic recession Real GDP goes down for longer than 1 year

Great Depression 1929-1939 Thousands of businesses forced to close Millions unemployed, lost homes, farms, and life savings Banks failed Millions hungry and homeless

New Deal Put millions to work on gov’t projects Building parks and schools Provided low cost loans so people could purchase homes Started social security fund

Ways to regulate business cycle Fiscal policy Government spending and taxation to influence economy Monetary policy Gov’t regulation of money in circulation Goals of both: Reduce unemployment Create economic growth Fight inflation

Federal Reserve Federal Reserve System sets monetary policy Controls it by: Interest rates/discount rates (interest rate charged on loans to commercial banks) Reserve requirements (% of bank deposits must hold on reserve- can’t loan this $) Open market operations

Fiscal policy in recession Spend money on projects that need workers Workers get paid, spending goes up Gov’t cuts taxes People have more $ to spend Demand for goods and services go up

Monetary policy in a recession Create a loose money supply Getting $ easy, more $ available for borrowing and investment, helps economic grown and employment Lower discount rate Decrease reserve requirments Banks borrow and loan more money Consumers spend more $

Inflation General rise in prices of goods and services Cause: economy expanding, more $ to spend, demand ↑, prices ↑ due to competition Effects: more $ for things, purchasing power ↓, standard of living ↓, hurts people on fixed incomes and who spend savings Hyperinflation: occurring at very high rate

Ways to control inflation Create tight money policy Decrease $ supply in circulation Discouraging investors from borrowing Fiscal and Monetary policy

Economic indicators Statistics used to judge economy’s health Gross Domestic Product (GDP) Per Capita GDP Consumer Price Index (CPI) Producer Price Index (PPI) Standard of Living Stock Market Index Unemployment Rates