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

Chapter 3 Economic Environment of Business 2 Lesson 3.1 Economic Wants Goals Describe economic concepts that apply to satisfying economic wants. Explain the role of capital formation in an economy.

Chapter 3 Economic Environment of Business 3 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 4 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 5 Lesson 3.2 Economic Systems Goals Discuss three economic systems and three economic-political systems. Explain why a business considers the economic-political system of a country.

Chapter 3 Economic Environment of Business 6 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 7 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 8 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 9 Lesson 3.3 Fundamentals of Capitalism Goals Describe why private property is important to capitalism. Describe how prices are set in a capitalistic system.

Chapter 3 Economic Environment of Business 10 Fundamentals of Capitalism Private property – Profit Price setting – Demand – Supply Competition Income distribution

Chapter 3 Economic Environment of Business 11 SUPPLY AND DEMAND

Chapter 3 Economic Environment of Business 12 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 13 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 14 Managing the Economy Identifying economic problems – Recession – Inflation Correcting economic problems – Business cycles: expansion, peak, contraction, trough – Depression