Class 1 Review What is a business? Are profits bad? Do not think emotionally Think economically Who determines what products are offered? How do people say what they want? (vote?)

Measuring the Economy Gross Domestic Product, GDP The sum of all goods and services produced within a nation’s boundaries U.S. GDP ~ $17 trillion China GDP > $9 trillion

Productivity: Key to Global Competitiveness Productivity describes the relationship between the number of units produced and the number of human and other production inputs necessary to produce them. Total Output (goods or services produced) Productivity Input (human/natural resources, capital) = Widely recognized measure of a company’s efficiency

Economics - 1 Microeconomics

Economic Thinking Freakonomics Economics applied to abortion Economics applied to daycare Economics applied to drug dealers Think differently Milton Friedman’s “Free to Choose”

Overview Economics—social science that analyzes the choices made by people and governments in allocating scarce resources. Economics is the social science that analyses the choices made by people and government in allocating scares resources. 1. Microeconomic is the study of economic activities of an individual consumer, family, or business. 2. Macroeconomics addresses how an economy maintains and allocates resources and how government policies affect people’s standards of living. 3. Micro and macroeconomics are interrelated.

Supply and Demand What is your pet worth? (vote with your dollars)

Economics Microeconomics—study of small economic units, such as individual consumers, families, and businesses. Assumes everyone acts in their own best interest (is greedy) Who is not greedy? Politicians? Macroeconomics—study of a nation’s overall economic issues, such as how an economy maintains and allocates resources and how government policies affect the standards of living of its citizens. Microeconomics is the study of economic behavior among individual consumers, families, and individual businesses whose collective behavior in the marketplace determines the quantity of goods and services demanded and supplied at different prices. By contrast, macroeconomics is the study of the broader economic picture and how an economic system maintains and allocates resources; it focuses on how governments’ monetary and fiscal policies affect the overall operation of an economic system.

Microeconomics: The Forces of Demand and Supply Demand—willingness and ability of buyers to purchase goods and services. Supply—willingness and ability of sellers to provide goods and services. A demand curve is a graph showing the amount of a good or service buyers will purchase at different prices. Since buyers likely will demand increasing quantities of a good at progressively lower prices, demand curves usually slope downward as they move to the right. By contrast, a supply curve is a schedule of the amounts of a good or service that businesses will offer for sale at different prices. Since sellers will likely make progressively more goods and services available as prices rise, supply curves usually slope upward as they move to the right. The interaction of the supply and demand curves determines the equilibrium price, the price at which the quantity supplied by sellers is precisely equal to the quality demanded.

Factors Affecting Demand Consumer preferences Incomes Prices of substitute products Advertising Number of buyers Economy Quality Future expectations

Demand Curve Graph amount of a product that buyers purchase at different prices Demand curves typically slope downward and to the right; lower prices attract larger purchases

Expected Shifts in Demand Curves

Shift in the Demand Curve

Supply Curve Shows the relationship between different prices and the quantities that sellers will offer for sale, regardless of demand

Factors Affecting Supply Costs of goods Costs of labor Costs of technology Availability of suppliers Taxes Weather (how?)

Expected Shifts in Supply Curves

Shifts in the Supply Curve

Law of Supply and Demand Equilibrium price

Supply and Demand Consider the market for lemonade. What happens when: There is a heat wave The price of sugar goes up The cost of a can of soda falls There is a baseball game on the street