1. Market Place where goods and services are bought and sold
Where sellers and buyers exchange goods and services
Based on SUPPLY and DEMAND

2. Market Price The price determined by the market
Price paid by the buyer and accepted by the seller

3. Perfect Competition Buyers and sellers are numerous and well informed
Product provided at the LOWEST possible price in order to maintain demand
Market price is beyond control of buyers and sellers

4. Monopoly Characteristics: Single seller of a good or service
No close substitute
Price maker
Blocked entry
Government regulated monopolies
Government allows natural monopolies
(Public services: gas, electricity, water)

5. Oligopoly Few firms dominate the market.
Products offered are substitutes or identical
Result of raising prices:
increase demand for substitute OR
encourage people to pay the higher
price for the brand they prefer

6. MERGERS
Combination of two or more companies to form a single business

7. Horizontal Merger
A merger between two competitors

8. Vertical Merger Supplier buys a reseller or vice versa.
Two companies have a buyer-seller relationship
A business at a different level/stage of the product delivery process buys another firm

9. Conglomerate Companies in unrelated businesses join together
Not competitors.
Not part of the same supply chain

10. The Business Cycle
Predictable long-term pattern changes in the national economy
Ups and downs of the economy

12. The Business Cycle

14. Phase 1-Expansion/recovery
Economy going up
People buying more goods and services
Businesses producing more goods and services
Businesses hiring more employees

15. Phase 2-Prosperity/Peak/Boom
Boom period- economic activity at peak
Businesses working and selling at full capacity

16. Phase 3-Contratcion Economy starting to slow down
People buying fewer goods and services
Businesses cutting back production
Business laying off workers
Some forced out of business

17. Phase 4-Recession Production at lowest point High unemployment
Reduced spending on goods and services

18. Recession and Depression
Slow down in economic activity
Real GDP goes down for 6 straight months
Average recession lasts about 1 year
Severe economic recession
Real GDP goes down for longer than 1 year

19. Great Depression 1929-1939 Thousands of businesses forced to close
Millions unemployed, lost homes, farms, and life savings
Banks failed
Millions hungry and homeless

20. New Deal Put millions to work on gov’t projects
Building parks and schools
Provided low cost loans so people could purchase homes
Started social security fund

21. Ways to regulate business cycle
Fiscal policy
Government spending and taxation to influence economy
Monetary policy
Gov’t regulation of money in circulation
Goals of both:
Reduce unemployment
Create economic growth
Fight inflation

22. Federal Reserve Federal Reserve System sets monetary policy
Controls it by:
Interest rates/discount rates (interest rate charged on loans to commercial banks)
Reserve requirements (% of bank deposits must hold on reserve- can’t loan this $)
Open market operations

23. Fiscal policy in recession
Spend money on projects that need workers
Workers get paid, spending goes up
Gov’t cuts taxes
People have more $ to spend
Demand for goods and services go up

24. Monetary policy in a recession
Create a loose money supply
Getting $ easy, more $ available for borrowing and investment, helps economic grown and employment
Lower discount rate
Decrease reserve requirments
Banks borrow and loan more money
Consumers spend more $

25. Inflation General rise in prices of goods and services
Cause: economy expanding, more $ to spend, demand ↑, prices ↑ due to competition
Effects: more $ for things, purchasing power ↓, standard of living ↓, hurts people on fixed incomes and who spend savings Hyperinflation: occurring at very high rate

26. Ways to control inflation
Create tight money policy
Decrease $ supply in circulation
Discouraging investors from borrowing
Fiscal and Monetary policy

27. Economic indicators Statistics used to judge economy’s health
Gross Domestic Product (GDP)
Per Capita GDP
Consumer Price Index (CPI)
Producer Price Index (PPI)
Standard of Living
Stock Market Index
Unemployment Rates