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Understanding Economic Systems and Business Chapter 1.

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Presentation on theme: "Understanding Economic Systems and Business Chapter 1."— Presentation transcript:

1 Understanding Economic Systems and Business Chapter 1

2 I. Nature of Business A. Business - an organization that strives for a profit by providing goods and services desired by its customers. B. Not-for-profit Organizations - organization that exists to achieve some goal other than usual goal of profit.

3 II. Key Stakeholders in a Business A. owners (entrepreneur, stockholders) B. creditors C. employees/managers D. suppliers E. customers

4 III. Key Functions of Business A. Management B. Marketing C. Finance D. Accounting E. Information Systems F. Human Resource Management G. Production

5 IV. Factors of Production 1. Natural resources 2. Labor 3. Capital 4. Entrepreneurship 5. Knowledge

6 V. How Business and Economies Work Economics - The study of how a society uses scarce resources to produce and distribute goods and services. A. Macroeconomics and microeconomics 1. Macroeconomics - focus on economy as a whole; considers aggregate data 2. Microeconomics - focus on individual parts of economy, such as households or firms

7 materials B. Circular Flow Between 3 Sectors of the Economy Government Households Businesses income labor costs revenues goods spending taxes, revenues, inputs, outputs, public goods and services

8 VI. Macro Econ: The Big Picture A. Striving for economic growth 1. Benefits: a. increased standard of living b. increased employment c. increased income 2. Drawbacks: a. pollution b. strain on facilities

9 B. Keeping people on the job 1. Measuring unemployment 2. Types of unemployment a. frictional unemployment b. structural unemployment c. cyclical unemployment d. seasonal unemployment

10 C. Keeping prices steady 1. Types of inflation a. Demand-pull inflation: demand > supply b. Cost-push inflation: in costs 2. How inflation is measured Rate of inflation is measured by changes in the consumer price index (CPI). FYI--- Inflation rates in the US: 1979 - 13.3% 1987- 4.4%1998 - 2.0% 2002 - 1.6%

11 VII. Achieving Macroeconomic Goals A. Monetary Policy –government programs for controlling the amount of money circulating in the economy and interest rates –contractionary policy vs. expansionary policy B. Fiscal Policy –government’s use of taxation and spending to affect the economy

12 VIII. Microeconomics: Looking at Businesses and Consumers A. Nature of demand demand curve - a graph showing the quantity of a good or service that people are willing to buy at various prices B. Changes in demand: 1. change in customer income 2. changes in fashion or taste 3. change in price of related products

13 C. Nature of supply supply curve - a graph showing the quantity of a good or service that a business will provide at various prices D. Changes in supply: 1. new technology 2. change in price of resources 3. change in price of related products

14 E. How demand and supply determine prices 1. Equilibrium point - the point at which quantity demanded equals quantity supplied $d s ____________ qty

15 IV. Types of Market Structures A. Perfect competition - large number of small firms sell similar products B. Pure monopoly - a single firm accounts for all industry sales C. Monopolistic competition - many firms offer products that are close substitutes, entry is easy D. Oligopoly - a few firms produce most or all of the output, factors limit entry

16 IV. Types of Market Structure A. Perfect competition C. Monopolistic competition B. Pure Monopoly D. Oligopoly

17 V. Characteristics of Economic Systems A. Capitalism - right to private ownership; entitle to all profits; right to choose one’s occupation B. Socialism - State owns basic industries, private industries exist; profits exist only in private sector; gov’t can influence one’s job choice C. Communism - state owns all industries; profits not officially recognized; state decides one’s occupation D. Mixed Economy - more than one economic system

18 VI. Major Trends in Business A.Social trends B.Demographic trends C.Americans on the move D.Diversity in America

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