Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Chapter 3 Economic Challenges Facing Global and Domestic Business

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 3-2 Economics Microeconomics—study of small economic units, such as individuals, families, and businesses. 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. Economics—social science that analyzes the choices made by people and governments in allocating scarce resources.

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 3-3 Microeconomics: The Forces of Demand and Supply Demand—willingness and ability of buyers to purchase goods and services (at different prices) Demand curve is typically downward sloping and to the right, meaning lower prices/larger purchases Supply—willingness and ability of sellers to provide goods and services (at different prices) regardless of demand Supply curve is typically upward sloping, meaning higher prices/higher supply

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 3-4 Factors Affecting Demand for Automobiles: Consumer Preferences, Incomes and the Prices of Substitute Products

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 3-5 Demand Curve for Gasoline

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 3-6 Shift in the Demand Curve for Gasoline

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 3-7 The Milk Industry Trying to Increase Overall Demand for its Products

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 3-8 Supply Curve for Gasoline

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 3-9 Factors Driving Supply Central role in determining the overall supply of goods and services is played by factors of production Natural resources Human resources Physical facilities Entrepreneurship

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved The intersection of the Supply and Demand Curves is the Equilibrium Price

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Macroeconomics: Issues for the Entire Economy Capitalism: The Private Enterprise System economic system in which business success or failure depends on how well firms match and counter the offerings of competitors Types of Competition Pure competition Monopolistic competition Oligopoly Monopoly

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Monopolistic Competition Relies on Differentiation of Products in a Market Purina One Special Care

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Gulfstream Airplanes: Oligopolistic Industrial Products

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Rawlings is the only supplier of baseballs for Major League Baseball and the NCAA

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Planned Economies: Communism and Socialism Communism: planned economic system in which private property is eliminated, goods are owned in common, and factors of production and production decisions are controlled by the state Socialism: planned economic system characterized by government ownership and operation of all major industries

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Mixed Market Economies Economic system that combines characteristics of both planned and market economies in varying degrees, including the presence of both government ownership and private enterprise Privatization

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Four Stages of the Business Cycle

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Productivity and the Nation’s Gross Domestic Product Productivity—relationship between the goods and services produced in a nation each year and the inputs needed to produce them. Gross domestic product—the sum of all goods and services produced within a nation’s boundaries each year.

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Price-Level Changes Consumer Price Index (CPI)—measures the monthly average change in prices of goods and services Inflation—rising prices caused by a combination of excess consumer demand and increases in the costs of raw materials, human resources, and other factors of production. Deflation—falling prices economic situation characterized by soaring prices

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Four Types of Unemployment

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Managing the Economy’s Performance Monetary Policy— Handled by the Federal Reserve and involves increasing or decreasing the money supply Fiscal Policy – Handled by the government through taxes and spending The government uses both Monetary and Fiscal Policy to control inflation, reduce unemployment, improve the general welfare of citizens, and encourage economic growth.

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Fiscal Policy Budget—organization’s plan for how it will raise and spend money during a given period of time. Budget deficit—funding shortfall that results when the government spends more than the amount of money it raises through taxes and fees National debt Budget surplus Balanced budget

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Where Federal Tax Revenues Come from

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. What’s wrong with this picture? 3-24

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. What’s wrong with this picture? 3-25

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. What’s wrong with this picture?