T4-1 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Topic 4 Introduction to economics

T4-2 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Topic overview  Definition of the ‘economising problem’  Definitions of ‘resources’ and ‘economies’  Introduction to supply and demand  Introduction to market equilibrium

T4-3 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Economising problem  Human beings have unlimited wants for goods and services. However, the resources available to satisfy these wants are limited (Jackson & McIver 2004).  This is called the ‘economising problem’.  Two principles: – Society’s material wants are virtually unlimited or insatiable. – Economic resources are limited or scarce.

T4-4 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Resources  Resources are all the natural, human and manufactured resources that go into the production of goods and services. – land, capital, labour and entrepreneurial ability.

T4-5 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia ‘Economics’  Economics is concerned with the efficient use of limited productive resources for the purpose of attaining the maximum satisfaction of our wants (Jackson & McIver 2004, p. 4). – provides the basis of government economic policy – helps us to be better informed citizens – assists in the making of business decisions – provides the means to develop a social perspective on economic problems

T4-6 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Activity 1 1.In groups of two or three students, or by yourself, write a list of the 10 most important goods and services that you want/need every day. 2.Of these 10 wants, which three are absolutely vital to your survival?  Can you imagine a situation where these vital wants/needs could not be satisfied?  What role do you think the government should play to ensure that your basic wants/needs are satisfied?

T4-7 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Economic perspective  Resources are limited.  Individuals operate on the basis of rational self- interest. (We make decisions that will provide us with the greatest benefits.)  Choices are made on the basis of benefits exceeding costs (‘marginal analysis’).

T4-8 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Demand and supply  Demand is the amount of product that consumers are willing and able to purchase at a specific price and at a specific time.  If the price falls, and all else remains constant, the quantity demanded increases.  That is, if the product is cheaper, consumers will buy more.  The law of demand is the inverse relationship between the price and the quantity demanded of a good or service during some period of time. (Jackson & McIver 2004, p. 73).

T4-9 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Demand  Non-price determinants of demand include: – consumer tastes/preferences – number of consumers in the market – incomes of consumers – prices of related goods – consumer expectations about future prices and incomes.

T4-10 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Activity 2  Consider a purchase of clothing you made recently.  On what basis did you make your decision to purchase the item?  Was it price alone or did any other determinants have an impact on your demand for the product?  List the other determinants.

T4-11 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Demand curve  The inverse relationship between product price and quantity demanded can be represented on a two-dimensional graph.  Quantity demanded is measured on the horizontal axis and price on the vertical axis.  ‘An individual’s demand schedule graphs as a down sloping curve because price and quantity are inversely related.’

T4-12 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Demand curve (cont.)  See an example of a demand curve graph on p. 274 of your textbook.  Consumers will demand more of a product as its price declines.  Non-price determinants of demand shift the demand curve either to the right (increase) or left (decrease).

T4-13 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Supply  Supply is the varying amounts of a product that producers are willing and able to produce and make available for sale in the market at a specific price and at a specific time.  As the price rises, the quantity supplied also rises; as the price falls, the quantity supplied also falls.  That is, producers are willing to supply more of their product at a high price than at a low price.

T4-14 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Law of supply  This is the direct relationship between the price and the quantity supplied of a good or service during some period of time (Jackson & McIver 2004, p. 81).  Non-price determinants of supply include: – resource prices – technology – prices of other goods – expectations – number of sellers in the market.

T4-15 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Activity 3  Complete activity 3 on p. 275 of your textbook.

T4-16 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Supply curve  The concept of supply can also be represented on a two-dimensional graph.  A change in supply occurs when one of the non-price determinants of supply changes.  An increase in supply shifts the supply curve to the right, and a decrease in supply shifts the supply curve to the left.  A change in the quantity supplied caused only by a change in the price of the product results in movement from one point to another on a fixed supply curve.

T4-17 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Supply curve (cont.)  See the supply curve graph on p. 276 of your textbook.

T4-18 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Market equilibrium  Product surpluses result when the price of the product is above the market-clearing price.  This causes producers to reduce their prices to sell their product.  Product shortages result when the price of the product is below the market-clearing price.  This causes consumers to bid up the price of the product.

T4-19 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Market equilibrium (cont.)  If all other factors are constant, an increase in demand and a decrease in supply will tend to increase the equilibrium price.  On the other hand, a decrease in demand and an increase in supply will tend to decrease the equilibrium price.

T4-20 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Market equilibrium (cont.)  When the supply decisions of producers and the demand decisions of buyers are consistent, an equilibrium price occurs.  Equilibrium prices and outputs are determined through the interaction of demand and supply leading to a market-clearing situation, where the quantity supplied and quantity demanded are equal (Jackson & McIver 2004, p. 95).

T4-21 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Communication Skills for International Students in Business, by Bretag, Crossman and Bordia Activity 4  Complete activity 4 on p. 277 of your textbook, using the ‘real world example’: Coke warms to changing prices.  Complete the suggested assessment on p. 278: a research essay outlining the market situation of a product of your choice. Use the essay marking criteria provided in Appendix 3, p. 357.