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Economic Environment of Business
CHAPTER 8 Economic Environment of Business 8.1 Economic Wants 8.2 Economic Systems 8.3 Fundamentals of Capitalism 8.4 Managing the Economy
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8.1 Economic Wants GOALS Describe economic concepts that apply to satisfying economic wants. Explain the role of capital formation in an economy. CHAPTER 8
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Wants Economic wants—desire for scarce material goods and services
Noneconomic wants—desire for nonmaterial things that are not scarce, such as air, sunshine, friendship, and happiness CHAPTER 8
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Satisfying Our Economic Wants
Utility Form utility Place utility Possession utility Time utility Factors of production Natural resources Labor Capital goods Entrepreneurship CHAPTER 8
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Capital Formation Capital formation—the production of capital goods
CHAPTER 8
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8.2 Economic Systems GOALS
Discuss three economic systems and three political-economy systems. Explain why a business considers the political-economy system of a country. CHAPTER 8
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Types of Economic Systems
Market economy Command economy Mixed economy CHAPTER 8
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Types of Political-Economy Systems
Capitalism Socialism Communism CHAPTER 8
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Comparison of Political-Economy Systems
Capitalism Socialism Communism Market/ Mixed Economy Mixed Economy Command/Mixed Economy Who may own natural resources and capital goods? Businesses and individuals Government for some, but not all Government for most How are resources allocated? By customers based on competition By government for some and customers for others By government only To what extent does government attempt to control business decisions? Limited Extensive over the allocation of some resources, but little over distribution Extensive How are marketing decisions made? By market conditions By government CHAPTER 8
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8.3 Fundamentals of Capitalism
GOALS Describe why private property is important to capitalism. Describe how prices are set in a capitalistic system. CHAPTER 8
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Private Property Right to private property Profit CHAPTER 8
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Price Setting Demand Supply Competition Income distribution CHAPTER 8
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8.4 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 8
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Promoting Economic Growth
Increase the number of people in the workforce Increase the productivity of the workforce Increase the supply of capital goods Improve technology by inventing new and better machines and better methods for producing goods and services Redesign work processes in factories and offices to improve efficiency Increase the sale of goods and services to foreign countries Decrease the purchase of goods and services from foreign countries CHAPTER 8
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Measuring Economic Growth
Gross domestic product Consumer price index CHAPTER 8
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Identifying Economic Problems
Recession Inflation Correcting economic problems Business cycles Depression CHAPTER 8
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Business Cycle Phases Phase Economic Condition Explanation Expansion
Low inflation Modest rise in GDP, profits, and employment Peak Modest to runaway inflation Growth reaches its highest level, as do profit and employment Contraction Modest inflation Growth begins to decline, as does employment Trough No growth, recession, or depression Lowest point in the cycle, with increased unemployment CHAPTER 8
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