chapter
What is Business?
An organized effort of
individuals to produce and
sell, for a profit, products and
services that satisfy societys
needs.
Economic Systems
Economic System
A nations system for allocating its resources
among its citizens, both individuals and
organizations
3 Big ones:
Capitalism
Socialism
Communism
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Planned Economies
Communism
A system Karl Marx envisioned in which
individuals would contribute according to their
abilities and receive benefits according to their
needs.
The government owns and operates all factors of
production.
Market Economics
Capitalism:
The government supports private ownership and
encourages entrepreneurship.
Individuals choose where to work, what to buy,
and how much to pay.
Producers choose who to hire, what to produce,
and how much to charge.
Socialism: The government owns and operates select
major industries such as banking and transportation.
Smaller businesses are privately owned.
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Supply
The willingness and ability of producers to offer a good or service for
sale.
Shortage
A situation in which the quantity demanded will
be greater than the quantity supplied
Causes lost profits
Invites increased competition
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Degrees of Competition
Perfect Competition
Prices are determined by supply and demand because no
single firm is powerful enough to influence the price of its
product.
All firms in an industry are small.
The number of firms in the industry is large.
Economic Indicators
Economic Indicators
Statistics that show whether an economic system is
strengthening, weakening, or remaining stable
Measure key goals of the U.S. economic system: economic
growth and economic stability
Economic growth indicators
Aggregate output, standard of living, gross domestic product, and
productivity
Aggregate Output
Growth during the business cycle is measured by the total
quantity of goods and services produced by an economic
system during a given period.
Standard of Living
The total quantity and quality of goods and services that
consumers can purchase with the currency used in their
economic system.
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Real GDP
GDP that has been adjusted to account for
changes in currency values and price changes.
Economic Growth
Productivity
A measure of economic growth that compares
how much product a system produces with the
resources needed to produce that product.
If more product is produced with fewer factors of
production, the price of the product decreases.
The standard of living in an economy improves through
increases in productivity.
Balance of Trade
How does a trade deficit affect economic growth?
The deficit exists because the amount of money spent on
foreign products has not been paid in full. In effect,
therefore, it is borrowed money, and borrowed money
costs more money in the form of interest.
The money that flows out of the country to pay off the
deficit cannot be used to invest in productive enterprises,
either at home or overseas.
http://www.americaneconomicalert.org/ticker_home.asp
Inflation
"an increase in the price you pay for
goods."
In other words, a decline in the purchasing
power of your money".
the percentage rate of change in price level
over time.
http://www.inflationdata.com/inflation/Inf
lation_Rate/CurrentInflation.asp
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Economic Indicators
Consumer Price Index (CPI)
A measure of the prices of typical products
purchased by consumers living in urban areas
Compared against base periodan arbitrarily selected
time period against which other time periods are
compared.
http://www.inflationdata.com/inflation/Consumer_Pric
e_Index/CurrentCPI.asp
http://www.google.com/publicdata?ds=usunemploy
ment&met=unemployment_rate&tdim=true&dl=en
&hl=en&q=unemployment+rate#met=unemploymen
t_rate&tdim=true
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Depression
A prolonged and deep recession
Monetary Policy
The manner in which a government controls its money supply.
Working mainly through the Federal Reserve System, the government
can influence banks willingness to lend money and prompt interest
rates to go up or down.
Stabilization Policy
Coordinating fiscal and monetary policies to smooth fluctuations in
output and unemployment and to stabilize prices.
economic environment
economic indicators
economic system
entrepreneur
external environment
factors of production
fiscal policies
global business environment
gross domestic product (GDP)
gross national product (GNP)
inflation
information resources
labor (human resources)
law of demand
planned economy
political-legal environment
private enterprise
privatization
productivity
profits
purchasing power parity
real GDP
recession
shortage
socialism
sociological environment
stability
stabilization policy