ECONOMICS Business Management

ECONOMICS IN PERSPECTIVE O BJECTIVE We will identify basic micro- and macro- economic concepts in order to understand disposable and discretionary income. E SSENTIAL Q UESTIONS What is economics? What is the driving force of the economy? Explain the difference between disposable and discretionary income.

ECONOMICS & THE DECISION-MAKING PROCESS

WHAT IS ECONOMICS? o Study of producing, distributing, and consuming goods and services o Involves decisions regarding the use of resources o Everyone has to make decisions about how to use resources! Individuals – consumers Businesses – producers Societies – government

THE ECONOMY’S DRIVING FORCE Wants o Things you would like to have o Non-essential; adds to the quality of life o Also referred to as a luxury Needs o Things necessary for basic living o Essential to human life; required for survival o Includes basic food, water, shelter, and clothing

RESOURCES ARE LIMITED o Resources limit the number of wants & needs that a person can satisfy. o Most consumers in the U.S. can satisfy their basic needs. o Most people have unlimited wants… we have to make choices! Basic Needs + Unlimited Wants Economic Resources

DISPOSABLE VS. DISCRETIONARY Disposable Income o Amount of an individual’s income that is left after deducting taxes o Gross Income – Taxes = Disposable Discretionary Income o Amount of an individual’s income that is left for spending, investing or saving after taxes and personal necessities (food, shelter, clothing) are paid o Includes money spent on luxury items, vacations, and all other non-essential goods and services

WHAT’S YOUR INCOME? Jacks – Kings$100,000 8 – 10$75,000 5 – 7$60,000 Ace – 4$48,000

(1) MONTHLY INCOME Divide your annual salary by 12 to determine your monthly salary.

(2) UNCLE SAM! o Multiply your monthly salary by 0.75 o We are assuming that you pay 25% in taxes and other payroll deductions, which means you take home 75% of your monthly salary. o This amount is your disposable income.

WANTS VS. NEEDS Prioritize the following purchases & expenditures:  Going Out to Eat $50.00 / week = $ per month  Entertainment $20.00 / week = $80.00 per month  Clothes Shopping $ per month  New Laptop $  Savings = 10% of disposable income  Doctor Visit & Antibiotics $50.00  Tithe / Charity = 10% of disposable income  Credit Card Payment $100.00

(3) BASIC NEEDS Rent for 1-bedroom Apartment $1300 Utilities $250 Car & Insurance $325 Student Loans $500 Groceries $50 / week = $ Gas $40 / week = $120.00

HAS ANYTHING CHANGED? Prioritize the following purchases & expenditures:  Going Out to Eat $50.00 / week = $ per month  Entertainment $20.00 / week = $80.00 per month  Clothes Shopping $ per month  New Laptop $  Savings = 10% of disposable income  Doctor Visit & Antibiotics $50.00  Tithe / Charity = 10% of disposable income  Credit Card Payment $100.00

CLOSING TASK #1 1)Economics involves decisions regarding _______________. 2)_______ and _______ are the driving force of the economy. 3)Most people have _______________ _______________ but limited resources, which means we have to make choices! 4)Individuals (consumers) are limited by the amount of _______________ income available after taxes and personal necessities are paid.

ECONOMICS – SUPPLY & DEMAND Objective We will identify basic micro- and macro-economic concepts in order to understand the role of supply and demand in the economy. Essential Questions What is the driving force of the economy? What is supply? What is demand? Explain the laws of supply and demand. Describe the impact of a shortage and a surplus on the economy.

SUPPLY & DEMAND

THE ECONOMY’S DRIVING FORCE o Wants & needs are the driving force of the economy. o Wants & needs determine the supply & demand of goods and services!

DEFINITIONS Supply the quantity of goods that producers (businesses) are willing to SELL at a particular price Demand the quantity of goods that consumers are willing to BUY at a particular price

LAW OF SUPPLY o As price increases, the quantity businesses are willing and able to produce will also increase. o Supply = Same direction P3P3 P2P2 P1P1 Q1Q1 Q2Q2 Q3Q3

LAW OF DEMAND o As price increases, the quantity that consumers are willing and able to pay will decrease. o Demand = Different direction P3P3 P2P2 P1P1 Q1Q1 Q2Q2 Q3Q3

GRAPHING o Equilibrium – the point at which supply meets demand; point of maximum profit o Shortage – when demand is greater than supply o Surplus – when supply is greater than demand D P3P3 P2P2 P1P1 Q1Q1 Q2Q2 Q3Q3 S

CONSIDER THE COOKIES… P RICE S UPPLY D EMAND $ $ $ $ $

GRAPH THE COOKIES!

EFFECTS ON ECONOMY Seller! o If there is a shortage, this means there is less supply from businesses than there is demand from consumers. o Who has more bargaining power – the buyer or the seller? Buyer! o If there is a surplus, this means that there is more supply from producers than there is demand from consumers. o Who has more bargaining power – the buyer or the seller?

GRAPHING SUPPLY & DEMAND Worksheet

CLOSING TASK #2 1)__________: the quantity that a business is willing and able to produce at a given price 2)__________: the quantity that a consumer is willing and able to purchase at a given price 3)The law of supply states that as price goes up, quantity will _______. 4)The law of demand states that as price goes up, quantity will _______. 5)A shortage creates a __________ market. 6)A surplus creates a __________ market.