Basic Economics. Objectives – Compare and contrast the economics of despair with the economics of growth. – Explain what capitalism is and how free markets work. – Discuss the major differences between socialism and communism. – Explain the trend towards mixed economies. – Discuss the significance of key economic indicators.

Definition. Economics > The study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals. There are two main points of view: – Microeconomic The behaviour of people and organisations in particular markets. – Macroeconomic The operation of a nations economy as a whole.

Resource Development – The study of how to increase resources and to create the conditions that will make better use of those resources. Economics of Despair – Thomas Malthus – Predicted that the increase in population would lead to dismal effects upon the inhabitants of the world. – Finite resources and an exponentially increasing population. – Result?

Economics of Growth – Adam Smith. – Give a man a fish and feed him for a day. Teach a man to fish and feed him for a lifetime. – Teach a person to start a fish farm and they'll feed a village for a lifetime. – Envisioned a system for the sustained creation of wealth that would lead to the betterment of society as a whole. – The invisible hand of the market at play.

Free Markets.... Capitalism > An economic system in which almost all of the factors of production and distribution (land, factories, railroads and stores) are privately owned and are operated for profit. Foundation of the worlds economic system. Free market: one in which the market itself determines what to produce and in which quantity. Essentially the consumer has a lot of power in terms of deciding the availability of goods and services.

Capitalism.... Ensures the following basic rights to all – Right to private property. – Right to own a business and to keep all of that businesses profits. – Right to freedom of competition. – Right to freedom of choice.

Supply & Demand.... Supply > The quantity of products that manufacture or owners are willing to sell at different prices at a specific time. Demand > The quantity of products that people are willing to buy at different prices at a specific time. These two opposing and complementary market forces determine the price of a product. Equilibrium price > The place where quantity demanded and supplied meet. In the long run the market price will tend toward the equilibrium point.

Competition.... Perfect Competition – The market situation in which there are many sellers in a market and no seller is large enough to dictate the price of a product. Monopolistic Competition – The market situation in which a large number of sellers produce products that are very similar but that are perceived by buyers as different. Oligopoly – A form of competition in which a few sellers dominate the market.

Monopoly – A market in which there is only one seller of a product or service. That is this one seller controls the product and its price.

Socialism.... A economic system based on the premise that some if not most basic businesses should be owned by the government so that profits can be evenly distributed among the people. Tries to ensure a measure of equality for all of societies members. Better working conditions and quality of life for all concerned.

Socialisms downside > – Incentive for people to distinguish themselves? – Brain drain – Loss of momentum for innovation due to lack of reward procedures.

Communism.... Invented by Karl Marx. An economic and political system in which the state (the government) makes all the economic decisions and owns almost all the major factors of production. Problem? Government must anticipate the needs of the people. Shortages are common. Communism hasn't really succeeded on a practical level.

Mixed Economies. Free market economies > Systems in which the market largely determines what goods and services get produced, who gets them and how the economy grows. Command economies > Systems in which the government largely decides what goods and services will be produced, and who will get them and how the economy will grow. Mixed economies > Systems in which some allocation of resources is made by the market and some by the government.

Refer to page 51. Figure 2.4 Book I – Understanding Business.

Economic Systems. Three major indicators of economic conditions – GDP Gross Domestic Product. – Unemployment Rate. – Price Indexes. GDP > Total value of final goods and services produced in a country in a given year. Unemployment Rate > Number of civilians at least 16 years old who are unemployed and who tried to find a job in the previous four weeks.

Consumer Price Indexes > These measure changes in the prices of about 400 goods and services that consumers buy. They contain monthly statistics that measure the pace of inflation/deflation. Productivity is the total volume of goods and services that one worker can produce in a given period.

Business Cycles. Economic boom > All companies enjoy profitable growth. Recession > When two or more quarters show declines in the GDP. Depression > Severe recession. Recovery > Economy stabilizes and starts to grow.