Economic Challenges Facing Global and Domestic Business

Economic Challenges Facing Global and Domestic Business

Chapter Overview

n Economics—social science that analyzes the choices made by people and governments in allocating scarce resources.

Economics

n Microeconomics—study of small economic units, such as individual consumers, families, and businesses.

n Macroeconomics—study of a nation’s overall economic issues, such as how an economy maintains and allocates resources and how government policies affect the standards of living of its citizens.

Microeconomics:

The Forces of Demand and Supply

n Demand—willingness and ability of buyers to purchase goods and services.

n Supply—willingness and ability of sellers to provide goods and services.

Factors Driving Demand

n Each person must choose

üBetween saving and spending

üHow to allocate spending

Factors Driving Demand

n Demand Curve

üGraph of the amount of a product that buyers will purchase at different prices

üDemand curves typically slope downward and to the right, meaning that lower prices attract larger purchases

n Demand Curve for Gasoline

n Shift in the Demand Curve for Gasoline

n Expected Shifts in Demand Curves

Factors Driving Supply

n Businesses must chose how to use their resources to obtain the best profits

n Supply Curve

üShows the relationship between different prices and the quantities that sellers will offer for sale, regardless of demand

n Supply Curve for Gasoline

Factors Driving Supply

n Central role in determining the overall supply of goods and services is played by factors of production

üNatural resources

üHuman resources

üPhysical facilities

üEntrepreneurship

n Expected Shifts in Supply Curves

How Demand and Supply Interact

n Separate shifts in demand and supply have obvious effects on product price and availability

n Equilibrium price

n Law of Supply and Demand

Macroeconomics: Issues for the

Entire Economy

n Capitalism: The Private Enterprise System and Competition.

üPrivate enterprise system—economic system in which business success or failure depends on how well firms match and counter the offerings of competitors; also known as capitalism.

Macroeconomics: Issues for the

Entire Economy

n Capitalism: The Private Enterprise System and Competition

üPure competition

üMonopolistic competition

üOligopoly

üMonopoly

üDeregulation

n Types of Competition

Planned Economies:

Communism and Socialism

n Communism: planned economic system in which private property is eliminated, goods are owned in common, and factors of production and production decisions are controlled by the state

n Socialism: planned economic system characterized by government ownership and operation of all major industries

Planned Economies:

Communism and Socialism

n What’s Ahead for Communism?

üMany formerly communist nations have undergone dramatic changes in recent year after introducing private enterprise systems

üHas not been smooth

üCommunism remains firmly entrenched in just a few countries

Mixed Market Economies

n Economic system that combines characteristics of both planned and market economies in varying degrees, including the presence of both government ownership and private enterprise

üPrivatization

Evaluating Economic Performance

n Flattening the Business Cycle

üEconomies flow through various stages of a business cycle

üRecession—cyclical economic contraction that lasts for six months or longer.

n Four Stages of the Business Cycle

Productivity and the Nation’s Gross

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