Chapter 3 Economic Environment of Business BellWork What do the terms ”want” and ”need” mean to you? Chapter 3 Economic Environment of Business

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

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

Economic Wants All societies face the problem of trying to satisfy the wants of their citizens for goods and services. Different societies developed different systems for producing and using goods and services. Economics — body of knowledge that relates to producing and using goods and services that satisfy human wants.

Satisfying Our Economic Wants Businesses help to make the economic system work by producing and distributing the particular goods and services that people want 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 NO economic systems has the resources to satisfy all consumers wants and needs.

Utility Utility – is the ability of a good or a service to satisfy wants. A good or 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. Producer – anyone who creates utility Producers are entitled to a reward for the usefulness that they add to a good or service. Ex: hairstylists are entitled to a reward for the usefulness of their service.

Factors of Production In creating useful goods and services, a producer uses four basic resources: Natural Resources – anything provided by nature that affects the productive ability of a country. Labor – is the human effort, either physical or mental, that goes into the production of goods and services. Capital Goods – are buildings, tools, machines, and other equipment that are used to produce other goods but do not directly satisfy human wants. Entrepreneurship - someone, or some group, must take the risks involved in starting a business, plan, and manage production of the final product

Factors of Production Labor: A part of labor is human capital, the accumulated knowledge and skills of human beings – the total value of each person’s education and acquired skills.

Capital Formation Capital formation — the production of capital goods. Consumer goods and services — goods and services that directly satisfy people’s economic wants. A country is capable of producing a fixed quantity of goods and services at anyone time. As a result, total production is divided between capital goods and consumer goods and services When the production of consumer goods and services increases, the production of capital goods decreases.

Question The body of knowledge that relates to producing and using goods and services that satisfy human wants is called Needs analysis Marketing Economics None of the above Answer: Economics

Question The ability of a good or a service to satisfy a want is called Economizing wants Utility Production Benefiting - Answer: Utility

Assignment Create a rap, play, poem, or story. about the factors of production. Be prepared to present your amazing creations!! Creativity _____/15 Content Accuracy ______/ 30 Natural Resources ______/5 Labor Resources ______/5 Capital Resources ______/10 Entrepreneurial Resources ______/10 Presentation Skills ______/5 Total _______/50

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

Bell-Work Describe the Factors of Production. What do you think are the different economic systems?

Lesson 3.2 Economic Systems Objectives Discuss three economic systems and three economic-political systems. Explain why a business considers the economic-political system of a country.

Economic Systems Remember that no country has enough resources to satisfy all the wants of all people for material goods and services. Because productive resources are scarce, difficult decisions must be made about how to use these limited resources.

Economic Systems All countries have an economic system. 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. All economies operate under some form of three basic economic systems: Market Economy Command Economy Mixed Economy

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

Market Economy Individual consumers, making their own decisions about what to buy, collectively determine how the society’s productive resources will be used. Individual citizens rather than the government, own most of the factors of production, such as land and manufacturing facilities.

Command Economy Countries that adopt a command economy are often dictatorships. The government, rather than consumers, decides how the factors of production will be used.

Mixed Economy The national government makes production decisions for certain goods and services. Ex: the post office, schools, health care facilities, and public utilities. NO country has a pure market or command economy. All have a mixed economy, just some have more elements of a market economy and others have more elements of a command economy.

Types of Economic-Political Systems Each country has an economic system and a political system. The political system nearly always determines the economic system. All economic-political systems are forms of three basic types: Capitalism Socialism Communism

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

Capitalism An economic-political system in which private citizens are free to go into business for themselves, produce whatever they choose to produce, and to distribute what they produce. Includes the right to own property.

Socialism How scarce resources are used to satisfy the many wants of people is decided, in part, by the government. The most extreme socialists want government to own all natural resources and capital goods. Disliked in the United States because it limits the right of the individual to own property for productive purposes.

Communism Decisions regarding what to produce, how much to produce, and how to divide the results of production among the citizens are made by government agencies on the basis of a government plan. Government measures how well producers perform on the basis of volume of goods and services produced, without much regard for the quality of or demand for the goods and services.

Question An organized way for a country to decide how to use its productive resources is called a(n) Economic system Political system Economic-Political system Political economy - Answer: Economic system

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 -Answer: Market economy

Assignment Split your paper into four sections. Label them mostly market economies, somewhat market economies, somewhat command economies, and mostly command economies. Research 10 countries and determine which economy it falls under. You must also indicate why you placed the country in that specific economy.

Lesson 3.2 Economic Systems Objectives/Exit Ticket Discuss three economic systems and three economic-political systems. Explain why a business considers the economic-political system of a country.

Bell-Work Describe the different market economies. What does the word profit mean to you?

Lesson 3.3 Fundamentals of Capitalism Objectives 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 Some economic-political systems either do not permit ownership of property (communism) or may impose limitations on ownership (socialism). One of the basic features of capitalism is the right to private property, a right reserved to the people by the Constitution.

Private Property The principle of private property is essential to our capitalistic system. Consists of item of value that individuals have the right to own, use, and sell.

Profit The incentive as well as the reward for producing goods and services. Profit is computed by subtracting the total costs of producing the products from the total received from consumers who buy them. Ex: A furniture company has costs for land, labor, materials, and capital goods. Profit is what the furniture company has left after subtracting these costs from the amount received from selling the furniture.

Price Setting Demand – refers to the number of products that will be bought at a given price. Demand is not the same as want There is a relationship between price and demand. With increased demand, prices generally rise in the sort run. When demand decreases, prices generally fall.

Price Setting Supply – refers to the number of like products that will be offered for sale at a particular time and at a certain price. Supply of a product also influences its price. If there is a current shortage in the supply of a product, its price will usually rise as consumers bid against one another to obtain the product. Changes in price determine what is produced and how much is produced in our economy. Also, determined by supply and demand

Market Price Is the price at which the producer can meet costs and make a reasonable profit.

Competition Is the rivalry among sellers for consumers’ dollars. Price competition, is one aspect of competition. Occurs when a firm takes a business away from its competitors by lowering prices for identical goods. Competition is the opposite of monopoly Monopoly is the existence of only one seller of a product. With no competition, a monopolist can charge unreasonably high prices and make extraordinary profits.

Income Distribution In a free-enterprise economy, the share of goods produced that an individual receives is determined by the amount of money that person has to purchase goods and services. People receive income by contributing their labor to the production of goods and services. The amount of money an individual receives in wages or salaries is determined by many factors, including personal traits and abilities.

Questions The number of products that will be bought at a given time at a given price is called Supply Demand Price Quantity Answer: demand

Questions Items of value that individuals have the right to own, use, and sell are known as Public Goods Product Utility Private Property All of the above Answer: Private Property

Assignment Research basketball and baseball players salaries. Determine if they make too much and indicate what the cap might be if they placed one on their salaries.

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

Chapter 3 Economic Environment of Business Bell-Work Why do developing countries have higher rates of economic growth (6 – 12%) than the U.S. (2 – 4%)? The size of the U.S. economy is much bigger, so smaller growth represents much larger dollar values. Chapter 3 Economic Environment of Business

Lesson 3.4 Managing the Economy Objectives 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.

Managing the Economy The strength of a nation depends upon its economic growth. Economic growth is measured by an annual increase in the gross domestic product, increased employment opportunities, and the continuous development of new and improved goods and services.

Promoting Economic Growth Economic growth occurs when a country’s output exceeds its population growth.

Promoting Economic Growth The following are basic ways to increase the production of goods and services in order to encourage economic growth:

Measuring Economic Growth To know whether the economy is growing at a desirable rate, statistics must be gathered. GDP is an extremely valuable statistics but another is Consumer Price index. Consumer Price Index (CPI) – indicates what is happening in general to prices in the country. It is the measure of average change of prices of consumer goods and services typically purchased by people living in urban areas. To calculate CPI, the government tracks price changes for hundreds of items, including food and gasoline.

Identifying Economic Problems Problems occur with the economy when the growth rate jumps ahead or drops back too quickly. Recession – is a decline in the GDP that continues for six months or more. Occurs when the demand for the total goods and services available is less than the supply. Inflation – is the rapid rise in prices caused by an inadequate supply of goods and services. Total demand exceeds supply

Correcting Economic Problems Most industrialized nations experience business cycles, a pattern of irregular but repeated expansion and contraction of the GDP. Business cycles last about five years and passes through four phases: Expansion Peak Contraction Trough

Correcting Economic Problems Although the nature of controls can be debated, some control is needed to prevent a destructive runaway inflationary period or depression – a long and severe drop in the GDP. Such conditions affect not only U.S. citizens but also the economic climate of foreign countries.

Question Answer: All are the ways to increase the production of goods and services

Question Answer: Inflation

Assignment Break up into each pair of business partners. Complete “My Business, Inc.” project on page 80. Make sure fully research the “Data Collection” section. Write the questions out for the “Analysis” section and answer the questions appropriately. If you finish early, answer complete the two case studies on page 78 and 79

Lesson 3.4 Managing the Economy Objectives/ Exit Ticket 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.