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

2. 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

3. 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

4. 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

5. 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

6. 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

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

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

9. 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

10. 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

11. 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