Chapters 2 and 11 Fundamentals of Business economics Chapters 2 and 11 Fundamentals of Business

What is economics? Study of how society chooses to use its resources Societies have to deal with scarcity Scarcity: shortage of resources We do not have unlimited amounts of anything

Factors of Production All of the components necessary to produce a society’s goods and services “economic resources” Examples: Wheat that grows Tractor to harvest the wheat Labor that turns it into flour

4 Types of Economic Resources Natural Resources Raw materials Basis of many economies Renewable and nonrenewable Human Resources Labor Knowledge, effort, and skills of people Skilled or unskilled Physical or intellectual Unions

4 Types of Economic Resources Capital Resources Not money Used to produce goods and services Buildings, materials, and equipment Factors of distribution Entrepreneurial Resources Improve use of resources Create or produce new uses Technologies

Production All societies must make choices What should be produced? What and how many How should it be produced? Methods, how many people, and quality Who should share in what is produced? Income = what you can afford to buy

Economic Systems Determines how resources will be used Provide a minimum standard of living Three types of systems Market Command Mixed

Market Economy Economic decisions are based off the laws of supply and demand Price is very important in a market economy Minimal government control Primary role: remove obstacles of supply and demand

Market Economy Demand: Supply: Equilibrium price: Quantity of goods and services consumers are willing and able to purchase Supply: Quantity of goods and services producers are willing to provide Equilibrium price: Price in which the amount supplied equals the amount demanded

Command Economy Central authority makes the key economic decisions Government Guarantees equal standard of living Job, place to live, and health care provided Few choices Fixed prices

Command Economy Two types: Communist Socialist All decisions and resources for the general good Socialist Major resources Some private businesses

Mixed Economy Combination of market and command economies Government takes care of needs Defense and education Private sector takes care of wants Cars, technology, and food Some government regulation in private sector

Role of Government in Business What role does a ref have in a wrestling match? What aspects of being a ref are like government’s role in business? Safety Quality Protection Business and public Unfair, unethical, and unsafe practices

Government as Regulator 4 Areas of Regulation in the Economy Protecting competition Protecting business agreements Protecting creative properties Regulating the production process - pollution

Protecting Competition Monopoly Oligopoly No competition  no choices for consumer Antitrust laws: allow government to break up monopolies, regulate them, or take them over FTC: sets standards for honest advertising Video

Protecting Business Agreements Enforcing contracts Rental agreements Car insurance policies Warranties Student loans Breach of contract: when one party fails to live up to the terms of a contract

Protecting Creative Properties Must be legally registered Copyright Art work (plays, photos, music, books, etc) 70 years after life of artist Patent Inventions Trademark Brand name, characteristic, or combination Video

Government as a Provider Some things you need but can’t buy Government provides goods and services to the public Who decides? Where does the money come from?

Providing Public Services For the good of society Examples: Welfare Unemployment Military Police and fire departments Parks Libraries Mail Public transportation

Providing Work Largest employer in the country Over 3,000,000 people Military Government officials Mail carriers Teachers Unemployment Welfare Job training Social security

Assisting Business Largest consumer of goods and services Construction Military needs Offices Loans Small Business Administration (SBA) Financial trouble Subsidies: payments the government gives to businesses to make up for losses (foreign competition) Tax incentives Responsible behavior