1. Chapter 3 Economic Environment of Business
©2008 Thomson/South-Western

2. Chapter 3 Economic Environment of Business
Bell Ringer:
Read Reality Check on page 52 –
“Hard Work Pays Off”
Chapter 3 Economic Environment of Business

3. Chapter 3 Economic Environment of Business
Lesson 3.1 Economic Wants
Goals
Describe economic concepts that apply to satisfying economic wants.
Explain the role of capital formation in an economy.
Chapter 3 Economic Environment of Business

4. Chapter 3 Economic Environment of Business
Economics
Economics — body of knowledge that relates to producing and using goods and services that satisfy human wants
Economic wants — desire for scarce material goods and services
Noneconomic wants — desire for nonmaterial things that are not scarce, such as air, sunshine, and friendship
Chapter 3 Economic Environment of Business

5. Chapter 3 Economic Environment of Business
Economic Wants
Satisfying our economic wants
Utility — form, place, time, possession
Factors of production — natural resources, labor, capital goods, entrepreneurship
Capital formation
Capital goods — goods needed to produce consumer goods and services
Consumer goods and services — goods and services that directly satisfy people’s economic wants
Chapter 3 Economic Environment of Business

6. Which of the following are economic wants?
Golf clubs
Income Tax Help
A peaceful walk in the park
Lunch at the finest restaurant in town
Answer: A, B, and D
Chapter 3 Economic Environment of Business

7. Utility — form, place, time, possession
Utility is the ability of a good or a service to satisfy a want. In other words, a good or a service that has utility is a useful good or service. Something is not useful, however, unless it is available for use in the right form and place and at the right time. As a result, four (4) types of utility exist: Form utility, place utility, time utility and possession utility.
Chapter 3 Economic Environment of Business

8. Chapter 3 Economic Environment of Business
Types of Forms
Form Utility – created by changes in the form or shape of a product to make it useful. Example: Is the swimsuit you desire to buy available in a particular fabric or style?
Place Utility – created by having a good or service at the place where it is needed or wanted. Example: Is the swimsuit you desire available in a nearby store where it can be purchased?
Chapter 3 Economic Environment of Business

9. Chapter 3 Economic Environment of Business
Types of Forms
Time Utility – created when a product or service is available when it is needed or wanted. Example: Is the store open when you are ready to buy and use your swimsuit?
Possession Utility- created when ownership is a good or service is transferred from one person to another, buy may also occur through renting or borrowing. Example: Is the swimsuit available at a price you can afford and are willing to pay?
Chapter 3 Economic Environment of Business

10. Chapter 3 Economic Environment of Business
Factors of Production
4 factors of production
Land (natural resources)
Labor
Capital goods
Entrepreneurship
Chapter 3 Economic Environment of Business

11. Chapter 3 Economic Environment of Business
Capital Formation
Capital Goods
The production of capital goods such as buildings, equipment.
Consumer goods and services
Goods and services that directly satisfy people’s economic wants.
Chapter 3 Economic Environment of Business

12. Which of the following are examples of capital goods?
A plumber buys a device that aids in replacing broken well pumps for rural customers.
A manufacturer buys robots that will help it make cars faster.
A sales person buys a new suit to wear when selling his firm’s manufactured products
Answer: A and B
Chapter 3 Economic Environment of Business

13. Chapter 3 Economic Environment of Business
Activity
Create a list of capital goods and a list of consumer goods on the board
WB 3A & 3B on page 20
Assessment on page 56
Answer 1 thru 4
Chapter 3 Economic Environment of Business

14. Chapter 3 Economic Environment of Business
Bell Ringer:
Each nation decides whether to have a market, command, or mixed economic system. These same nations may change economic systems from time to time. Can you name any countries that have changed their economic systems in recent years?
Russia, Eastern European countries, which shifted from command to market economies
Chapter 3 Economic Environment of Business

15. Lesson 3.2 Economic Systems
Goals
Discuss three economic systems and three economic-political systems.
Explain why a business considers the economic-political system of a country.
Chapter 3 Economic Environment of Business

16. Chapter 3 Economic Environment of Business
Economic Systems
Economic system — organized way for a country to decide how to use its productive resources; that is, to decide what, how, and for whom goods and services will be produced
Chapter 3 Economic Environment of Business

17. Types of Economic Systems
Market economy — individual buying decisions in the marketplace determine what, how, and for whom goods and services will be produced
Command economy — central planning authority, under control of government, owns most of the factors of production and determines what, how, and for whom goods and services will be produced
Mixed economy — aspects of a market and a command economy are used to make decisions about what, how, and for whom goods and services will be produced
Chapter 3 Economic Environment of Business

18. Types of Economic-Political Systems
Capitalism — private citizens are free to go into business for themselves, produce whatever they choose, and distribute what they produce
Socialism — government controls the use of the country’s factors of production
Communism — all or almost all of a nation’s factors of production are owned by the government
Chapter 3 Economic Environment of Business

19. Chapter 3 Economic Environment of Business
Capitalism
Supply and demand provide environmental pressures.
Those that best "fit" that environment survive and maintain the rules/laws.
Those that can't/don't thrive in the system, and otherwise lack participation
Successful capitalistic systems tend to be open and competitive.
Chapter 3 Economic Environment of Business

20. Chapter 3 Economic Environment of Business
Socialism
All members of the economy share benefits, regardless of their economic value to the system.
Successful socialistic systems depend on sufficient resources for the entire population.
Chapter 3 Economic Environment of Business

21. Chapter 3 Economic Environment of Business
Communism
All members of the economy share both work and benefits.
Those that do not provide their share of effort and resources to the system are culled.
A healthy communistic system results in a cooperative society.
Chapter 3 Economic Environment of Business

22. Chapter 3 Economic Environment of Business
Question
An organized way for a country to decide how to use its productive resources is called
Economic system
Political system
economic-political system
Political economy
Chapter 3 Economic Environment of Business

23. Chapter 3 Economic Environment of Business
Question
Jax lives in a country where only individual buying decisions in the marketplace determine what, how, and for whom goods and services will be produced. Jax lives in a country that has primarily a
Market economy
Command economy
Socialist economy
None of the above
Chapter 3 Economic Environment of Business

24. Chapter 3 Economic Environment of Business
Think Critically
Describe why most countries can be seen as having a mixed economy.
Describe the goals of privatizing government services.
Chapter 3 Economic Environment of Business

25. Lesson 3.3 Fundamentals of Capitalism
Goals
Describe why private property is important to capitalism.
Describe how prices are set in a capitalistic system.
Chapter 3 Economic Environment of Business

26. Fundamentals of Capitalism
Private property
Profit
Price setting
Demand
Supply
Competition
Income distribution
Chapter 3 Economic Environment of Business

27. Chapter 3 Economic Environment of Business
SUPPLY AND DEMAND
Chapter 3 Economic Environment of Business

28. Chapter 3 Economic Environment of Business
Question
Items of value that individuals have the right to own, use, and sell are know as
Public goods
Product utility
Private property
All of the above
Chapter 3 Economic Environment of Business

29. Chapter 3 Economic Environment of Business
Question
Explain how supply and demand help determine the price of goods and services.
Chapter 3 Economic Environment of Business

30. Chapter 3 Economic Environment of Business
Activity:
Search Hot Shot Business or go to …..
Select a business and open it. Run your business for 6 virtual weeks, track you progress for each week.
Chapter 3 Economic Environment of Business

31. Lesson 3.4 Managing the Economy
Goals
Explain how economic growth can be promoted and measured.
List basic economic problems that exist and state what government can do to correct the problems.
Chapter 3 Economic Environment of Business

32. Chapter 3 Economic Environment of Business
Managing the Economy
Promoting Economic Growth
Increase the number of people in the workforce
Increase the productivity in the workplace
Increase the supply of capital goods
Increase sales to foreign countries
Decrease the purchase of goods and services from foreign countries
Chapter 3 Economic Environment of Business

33. Chapter 3 Economic Environment of Business
Managing the Economy
Measuring economic growth
Gross domestic product (GDP)
Consumer Price Index (CPI)
Index of leading economic indicators
Employment
Retail sales
Personal income and consumption
Chapter 3 Economic Environment of Business

34. Chapter 3 Economic Environment of Business
Managing the Economy
Identifying economic problems
Recession
Inflation
Correcting economic problems
Business cycles: expansion, peak, contraction, trough
Depression
Chapter 3 Economic Environment of Business

35. Business cycles are irregular in length and in severity.
Expansion – Modest rise in GDP, profits and employment
Peak – Growth reaches its highest level, as do profit and employment
Contraction – Growth begins to decline, as does employment
Trough – Lowers point of the cycle, with increased upemployment
Chapter 3 Economic Environment of Business

36. Chapter 3 Economic Environment of Business
CPI
GDP
Chapter 3 Economic Environment of Business

37. Chapter 3 Economic Environment of Business
Questions
3.4 Assessments on page 74
Discussion: What are some of the indications that an economy may be heading for a recession?
Study Guide
Chapter 3 Economic Environment of Business

38. Chapter 3 Economic Environment of Business
Activities
Study Guide Ch. 3
Chapter 3 Economic Environment of Business

39. Chapter 3 Economic Environment of Business
Games
Chapter 3 Economic Environment of Business