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*
Understanding
How Economics
Affects Business
Land
Entrepreneurship
Labor
Knowledge
Capital
What is ECONOMICS?
Economic Theory
Malthus believed that if the rich had most of the wealth and the
poor had most of the population, resources would run out.
This belief led the writer Thomas Carlyle to call economics The
Dismal Science.
Four Whats of
an Economic System
$ What (how it) is produced
$ What amount is produced
$ What method of output distribution
$ What rate of economic growth
Adapted from: Edwin Mansfield Economics (New York: W.W. Norton, 1976), p.8
(Highly Controlled)
(Little Control)
Communism
Capitalism
*Understanding
Free-Market
Capitalism
LG2
United States
England
Australia
Canada
2-11
Capitalism
Private Property
Individuals can buy, sell and properties.
Profit/Ownership
Profit acts as incentive for taking risk and initiative.
Freedom of Competition
Possesses right to compete each other.
Freedom of Choice
Free to choose what to do and what not.
Supply Curve
High
Price(P)
S
Low
Quantity(S)
High
Demand Curve
High
Price(P)
D
Low
Quantity(D)
High
EQUILIBRIUM
POINT
Surplus
High
Market Equilibrium
Price
S
Low
Shortage
Quantity
D
High
Degrees of Competition
Monopolistic
Oligopoly
Competition
One
Monopoly
Many
Sellers
Pure Competition
Diamonds
South-Africa
Utilities
WASA
DESA
Tobacco
Gold-Leaf -Banson
Pall Mall -Sheikh
More -Garam -Pine
Automobiles
Toyota -Ford
Porshe -Nissan
Monopolistic Competition =
Many Sellers With Perceived Differences
Fast Food
McDonalds
Pizza Hut
-KFC
-Subway
University/College
Harvard
Stanford
Orford
Pure Competition
Sellers
Buyer
Limitations of Free-Market
Potential Environmental
Damage
SOCIALISM
Socialism -- An economic system based on the
2-22
Socialism
COMMUNISM
2-24
Communism
Public Ownership
Productive Capacity
Capital
Central Planning/Controlled
Economy
Managers = Mandatory Party
Membership
Comparis
on of the
main
economic
systems
MIXED ECONOMIES
Mixed Economies -- Some allocation of resources
is made by the market and some by the government.
Mixed Economies
Unemployment Rate
Price Indexes
Consumer Price Index(CPI)
Producer Price Index(PPI)
Net national product (NNP) is the total market value of all final
goods and services produced by residents in a country during a
given time period.
2-30
Economic Scenarios
Inflation: A general rise in the prices of goods and services over time.
Disinflation: A situation in which price increases are slowing (the inflation rate is
decreasing).
Deflation: A situation in which prices are declining.
Stagflation: A situation when the economy is slowing but prices are going up
anyhow.
Consumer price Index (CPI): Monthly statistics that measure the pace of
inflation or deflation.
BUSINESS CYCLES
The Business
Cycle
LG5
1. Economic Boom
2. Recession Two or more consecutive quarters
of decline in the GDP.
3. Depression A severe recession.
4. Recovery When the economy stabilizes and
starts to grow. This leads to an Economic Boom.
2-33
Internal Debt
-External Debt
Enforces Rules/Regulations
Provides Public Goods
Transfers Payments
Fosters Competition
Contributes to Economic Stability
FISCAL POLICY
Stabilizing the
Economy Through
Fiscal Policy
LG6
Taxation
Government Spending
2-36
Industrialized
Nations Tax Rate
MONETARY POLICY
*Using Monetary
LG6