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Chap-3 Economic Challenges Facing......

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51 views25 pages

Chap-3 Economic Challenges Facing......

Uploaded by

Lalu Ahsanul Adlani
Copyright
© © All Rights Reserved
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>>>>>>>> Chapter 3

Economic Challenges
Facing Global and Domestic
Business
g G o a l s
Le a r n i n
1 Distinguish between micro- 5 Identify and describe the four
economics and macroeconomics. stages of the business cycle.

2 Explain the factors that drive 6 Explain the factors that affect the
supply and demand. stability of a nation’s economy.

Describe the four types of market Discuss how monetary and fiscal
3
structures in a private enterprise 7 policy are used to manage an
system. economy’s performance.

4 Compare the three major types of Describe the major global


8 economic challenges of
economic systems.
the 21st century.
Ec o n o m i c s

Analysis of the choices people and


governments make in allocating resources.

– Supply: Amount of goods and services for sale


at different prices.

– Demand: Willingness and ability of consumers


to purchase goods and services at different
prices.
r o e c o n o m i c s
M i c

The study of small


economic units, such
as individual
consumers, families,
and businesses.
r s Dr i vi ng
Facto
Demand
• Demand curve - shows the amount of a product buyers will
purchase at different prices.

• Driven by variety of factors like competition, price, larger economic


events, and consumer preferences.
n d C u r v e
D em a
A change in overall demand, shifts to a new
demand curve.
Suppl y C u r v e
• Supply curve - shows the relationship between different prices
and the quantities that sellers will offer for sale, regardless of
demand.
s Dr i vi ng
Factor
Supply

Production plays a central role in determining the overall


supply of goods and services.
pp l y a n d
How Su
In t e r a c t
Demand
• Supply and demand curves meet at the equilibrium price.
• Buyers and sellers make choices that restore the equilibrium price.
• Changes affect both supply and demand.
r o e c o n o m i c s
M a c
Issues For The Entire Society
• Political, social, and legal environments differ in every
country.
• Economies generally classified in one of three categories:
– Private enterprise system: capitalism or market economy
– Planned economies: socialism, communism
– Mixed economies (combinations of the two)
C a pi t a l i s m
The Private Enterprise System and Competition
• Businesses meet needs of consumers and are rewarded
through profit.
• Government favors a hands-off approach.
• Marketplace competition regulates economic life.
• Four degrees of competition:
– Pure competition
– Monopolistic competition
– Oligopoly
– Monopoly
f C o m p e t i t i o n
Ty p e s o
d E con omi es
Pl an n e
Government controls determine business ownership, profits,
and resource allocation.

Communism Socialism
• Property owned and shared by • Government ownership and
the community under a strong operation of major industries,
central government. such as healthcare or
communications.
• Adopted in early 20th century
by many nations, but • Some private ownership of
government-owned industry allowed.
monopolies often suffered from
inefficiency.
e d M a r k e t
Mi x
E c o n o m i e s

• Economic systems that combine features of private


enterprise and planned economies.

• Mixture of public and private enterprise can vary


widely from country to country.

• Process of converting a publicly owned company to a


private one is called privatization.
i ng E c o no m i c
C o m pa r
Systems
i ng E c o no m i c
E va l ua t
Per f o r m a n c e

Economic system should provide stable business


environment and sustained growth.
• Business decisions and consumer behavior differ at
various stages of the business cycle:
 Prosperity—High consumer confidence, businesses expanding
 Recession—Cyclical economic contraction lasting for six months
or longer
 Depression—Extended recession
 Recovery—Declining unemployment, increasing business activity
i t y a nd GDP
Productiv

• Productivity: Relationships between the goods and services


produced and the inputs needed to produce them.

• Gross Domestic Product (GDP): Sum of all goods and


services produced within a nation’s boundaries; a measure of
national productivity.
• GDP is tracked in the United States by the Bureau of Economic
Analysis, a division of the U.S. Department of Commerce.
v e l C h a n g e s
P r i c e - L e
• Inflation is rising prices caused by a combination of excessive
consumer demand and increases in the costs of raw materials.
• Core inflation rate measures inflation minus energy and food
prices.
– Demand-pull inflation - Excessive consumer demand.
– Cost-push inflation - Rises in costs of the factors of production.
– Hyperinflation - Soaring consumer prices.

• Inflation devalues money - people can purchase less with what they
have.
• Deflation is when prices continue to fall. Deflation can cause a
weakened economy.
r i ng P r i c e
Mea s u
l C h a ng e s
Leve
• Changing prices are tracked by the Consumer Price
Index (CPI).
– The monthly average change in prices of goods and services.
– A multitude of items are priced to compile the data included
in the “CPI Market Basket”
• The Bureau of Labor Statistics calculates the CPI
monthly along with other economic measures.
ar ket Basket
CP I M
nt Le ve l s
Employme

The unemployment rate is the percentage of total workforce actively


seeking work but currently unemployed.
e E c o n o m y ’ s
Ma n a g i n g t h
Pe r fo r m a n c e

• Monetary Policy - government actions to increase or decrease


the money supply and change banking policy and interest rates
to influence consumer spending.
– Expansionary monetary policy: Efforts to increase the money
supply to reduce costs of borrowing and encourage new investment.
– Restrictive monetary policy: Efforts to decrease the monetary
supply to curb rising prices and overexpansion.
• The Federal Reserve System formulates and implements
monetary policy.

Government uses monetary and fiscal policy to fight unemployment,


increase spending, and reduce the duration and severity of economic
recession.
Fisc a l P o l i c y
• Fiscal Policy - Government actions to influence economic activity
through decision about taxes and spending.
• The Federal Budget - Annual plan for how the government will
raise and spend money in the coming year. The primary sources of
government funds:
– taxes, borrowing, fees
• When the government spends more than the amount of money it
raised, there is a budget deficit. When we borrow money to cover
the deficit, the national debt is increased.
• If the government has more money than it spends, there is a
budget surplus.
• National debt is tracked by the Government Accountability Office.
E c o no m i c
Global
Cha l l e ng e s

 International Terrorism

 Shift to a global information economy

 Aging of the world’s population

 Growth of India and China straining commodity


prices

 Enhancing competitiveness of every country’s


workforce

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