Business 100 Introduction to Business Dr. Kathy Broneck

Review Overall of Businesses Factors of Production Business Environments

Preview Economics

Economics: Create Wealth Use Scarce Resources to Produce Goods & Services To Distribute Among Competing Groups/Individuals Micro v. Macro Resource Development Increase resources Create conditions for bettering the use of resources

$ What is produced? $ What amount is produced? $ What is the method of output distribution? $ What is the rate of economic growth? Adapted from: Adapted from: Edwin Mansfield Economics (New York: W.W. Norton, 1976), p.8 Economic Systems

Economic Theories Thomas Malthus (Early 1800s) “Dismal Science” Too many people, not enough food or resources Adam Smith (1776) Freedom is vital “Invisible Hand” Self-directed gain leads to social and economic benefits

Three Economic Systems Communism Socialism Capitalism (Highly Controlled ) (Little Control ) Mixed

Free-Market Capitalism Private Property Profit/Ownership Freedom of Competition Freedom of Choice

General Economic Terms Supply How much of a product manufacturers are willing to sell Different prices Different times Demand How much of a product buyers are willing to buy Different prices Different times

Supply Curve Quantity(S) High High Low Price(P) S

Demand Curve Price(P) Quantity(D) High Low D

Quantity High Low Price Equilibrium Point Market Equilibrium SD Surplus Shortage

Free-Market Competition Sellers OneMany Monopoly Oligopoly MonopolisticCompetition Perfect Competition

Many sellers to buyers Sellers do not control prices Produce IDENTICAL products

Monopolistic Competition Large number of sellers produce similar products Hotdogs Toothpaste Fast food Colleges Buyers perceive products as being different Branding Advertising Packaging

Oligopolies Few sellers dominate the market Prices and products from different companies tend to be the same Use of product differentiation Tobacco Automobiles Soft drinks

Monopolies Only one seller for the product Diamonds Utilities Microsoft (always battling this) Seller dictates price Illegal in the US Exception: Government regulated public utilities

Limits of Free-Markets Inequality of Wealth Causes National & World Tension Greed Compromises Ethics Potential Environmental Damage Limitations Push Country towards Socialism = Government Regulation

Socialism Private & Public Ownership Some Choices are Limited Creates Social Equality Reduces Individual Incentive Brain Drain

Industrialized Nations’ Tax Rates Source: Parade Magazine, Apr. 12, 1998.

Communism Public Ownership Productive Capacity Capital Central Planning/Controlled Economy Managers = Mandatory Party Membership

Types of Economies Free-Market Economy Market decides what is produced Capitalism Command Economy Government decides what is produced Socialism Communism Mixed Economy Some government, some free-market

US Economy: How to Look at It Key Economic Indicators Gross Domestic Product (GDP) Unemployment Rate Price Indexes Consumer Price Index(CPI) Producer Price Index(PPI) Productivity

SOURCE: SOURCE: U.S. Bureau of Labor Statistics Consumer Price Index

US Economy: How to Look at It Business Cycles Recession Depression Recovery Stabilization Fiscal Policy Monetary Policy National Debt

Source: Office of Management & Budget, 2002 Where the Gov’t Gets its Money

What Federal Dollars Buy (2002) Human Resources. – 63% Other 5.7% Defense % Interest 7.9% Physical Resources 5.9% Source: Office of Management & Budget

The debt has reached $8.5 trillion+ National Debt Clock- Cost of War (debt) The National Debt