Chapter 2 - Summary: Economics & Its Impact on Business Admin | Môn Business Administration - Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

lOMoAR cPSD| 59078336 Understanding Economics and How it Affects Business McGraw-Hill/Irwin
Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved. lOMoAR cPSD| 59078336 What Is Economics?
Economics is the study of how society
chooses to employ resources to produce goods
and services and distribute them among
competing groups and individuals. lOMoAR cPSD| 59078336 BRANCHES OF ECONOMICS
Macroeconomics: Concentrates on the operation of a nation’s economy as a whole. Microeconomics: Concentrates on the behavior of people and organizations in markets for particular products or services. RESOURCE DEVELOPMENT lOMoAR cPSD| 59078336
Resource Development -- The study of how to
increase resources and create conditions that will
make better use of them. We accomplish this by: • New Technology • New Methods • New Processes • Better Resources EXAMPLES of RESOURCE DEVELOPMENT lOMoAR cPSD| 59078336
• Making resources last longer - Recycling
• New energy sources - Hydrogen fuel • New ways of growing foods - Hydroponics
• New ways of creating goods and services – Aquaculture – Nanotechnology
Resource Development is often referred to as the New Economy. lOMoAR cPSD| 59078336 Economic Systems
CAPITALISM is an economic system in which all or most of the
factors of production and distribution are privately owned and operated for profit.
SOCIALISM is an economic system based on the premise that some,
if not most, basic businesses should be owned by the government
so that profits can be distributed among the people.
COMMUNISM is an economic and political system in which the
state (the government) makes almost all economic decisions and
owns almost all the major factors of production.
Note: These are nothing but economic philosophies of how
society (country) chooses to employ its resources. TWO MAJOR ECONOMIC SYSTEMS lOMoAR cPSD| 59078336
• Free-Market Economies -- The market largely
determines what goods and services are produced,
who gets them, and how the economy grows. (Capitalism)
• Command Economies -- The government
largely determines what goods and services are
produced, who gets them, and how the economy will grow. (Socialism, Communism} 2-7 MIXED ECONOMIES
• Note: Neither free-market nor command economies
have created sound economic conditions so countries
use a mix of the two economic systems. lOMoAR cPSD| 59078336
• Mixed Economies -- Some allocation of resources is
made by the market and some by the government.
• Although the U. S. subscribes to the Capitalism
philosophy, the U.S. does employ some
Socialism and Communism philosophies making it a mixed economy. 2-8
Limits of Free-Markets (Capitalism)
• Inequality of Wealth Causes National & World Tension • Greed Compromises Ethics
• Limitations Push Country towards Socialism, which Leads to More Government lOMoAR cPSD| 59078336 Regulation Trends in World Economies
• Communist governments are disappearing. • Socialist governments are cutting back on social programs, lowering taxes and moving toward capitalism. • Capitalist countries are
increasing social programs and moving more toward socialism. FOUR DEGREES
of COMPETITION or FORMS of CAPITALISM lOMoAR cPSD| 59078336 1. Perfect or Pure Competition 2. Monopolistic Competition 3. Oligopoly 4. Monopoly EXAMPLES
Perfect (Pure) Competition: Many sellers, similar
products. Example Agricultural Products Kansas Nebraska VS. Wheat Wheat lOMoAR cPSD| 59078336
Monopolistic Competition: Large number of sellers,
products differ but are close substitutes. Example Fast Food EXAMPLES
Oligopoly: Few sellers that dominate market. Example Soft Drinks lOMoAR cPSD| 59078336
Pure Monopoly: Single seller has all the sales. Example Public Utilities PRICING lOMoAR cPSD| 59078336
• A seller may want to sell shirts for $50, but only a few
people may buy them at that price. This creates a surplus of goods.
• A seller lowers the price to $30,
more people than normal buy the
shirts. This creates a shortage of goods.
• The seller establishes a price of $40 based on what consumers are
willing to pay and what the seller is willing to provide. SUPPLY CURVES
• Supply -- The quantities of products businesses are
willing to sell at different prices. lOMoAR cPSD| 59078336 DEMAND CURVES
• Demand -- The quantities of products consumers are
willing to buy at different prices. lOMoAR cPSD| 59078336 lOMoAR cPSD| 59078336 Price Elasticity
When Elastic Demand exists, a slight decrease in the
price of a product results in a relatively large
increase in demand or items sold. On the other lOMoAR cPSD| 59078336
hand, a slight increase in price results in a relatively
large decrease in demand or items sold. In other
words, people are price sensitive. When Inelastic
Demand exist, a slight increase or decrease in price
will not significantly change the demand or items
sold. However, lowering price will increase the
quantity sold but revenues will decrease. In other
words, people are not as price sensitive. lOMoAR cPSD| 59078336 Price Elasticity lOMoAR cPSD| 59078336 Elasticity Example Elastic Demand Price Demand Revenue $7.00 50 $350.00 $9.00 20 $180.00 Inelastic Demand Price Demand Revenue $7.00 50 $350.00 $9.00 47 $423.00 lOMoAR cPSD| 59078336
SOME DETERMINANTS OF ELASTICITY
Price elasticity can vary with products and services.
A product could have elastic demand in one part of
the country and inelastic demand in another part of
the country. Also price elasticity for a product or
service is influenced by several factors.
Availability of Substitutes: If a product or service
has close substitutes, demand would be elastic.
However if a product or service has few substitutes,
demand would be inelastic. For example, a new
shirt or blouse has many possible substitutes, but
gasoline has almost no substitutes.