CHAPTER 3

THE MOST CHALLENGING

ECONOMY IN DECADES

Nazia Choudhury
Lecturer
School of Business
ULAB

Economicssocial science that analyzes the

choices made by people and governments in
allocating scarce resources.

Microeconomicsstudy of small economic

units, such as individual consumers, families,
and businesses.

Macroeconomicsstudy of a nations overall

economic issues, such as how an economy
maintains and allocates resources and how
government policies affect the standards of
living of its citizens.
2

MICROECONOMICS:
THE FORCES OF DEMAND AND SUPPLY

Demandwillingness and ability of buyers to

purchase goods and services.

Supplywillingness and ability of sellers to

provide goods and services.

FACTORS DRIVING DEMAND

Demand Curve
Graph

of the amount of a product that buyers

will purchase at different prices
Demand curves typically slope downward and to
the right, meaning that lower prices attract
larger purchases

DEMAND CURVE FOR GASOLINE

SHIFT IN THE DEMAND CURVE

FOR GASOLINE

EXPECTED SHIFTS IN DEMAND

CURVES

FACTORS DRIVING SUPPLY

Supply Curve
Shows

the relationship between different prices

and the quantities that sellers will offer for sale,
regardless of demand

HOW DEMAND AND SUPPLY

INTERACT

Separate shifts in demand and supply have

obvious effects on product price and
availability

Equilibrium price

LAW OF SUPPLY AND DEMAND

10

MACROECONOMICS: ISSUES FOR THE

ENTIRE ECONOMY

Capitalism: The Private Enterprise System

and Competition.
Private

enterprise systemeconomic system in

which business success or failure depends on how
well firms match and counter the offerings of
competitors; also known as capitalism.

11

MACROECONOMICS: ISSUES FOR THE

ENTIRE ECONOMY

Capitalism: The Private Enterprise System

and Competition
Pure

competition
Monopolistic competition
Oligopoly
Monopoly
Deregulation

12

TYPES OF COMPETITION

13

PLANNED ECONOMIES:
COMMUNISM AND SOCIALISM

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

Socialism: planned economic system

characterized by government ownership and
operation of all major industries

14

MIXED MARKET ECONOMIES

Economic system that combines

characteristics of both planned and market
economies in varying degrees, including the
presence of both government ownership and
private enterprise
Privatization

15

COMPARISON OF ALTERNATIVE
ECONOMIC SYSTEM

16

EVALUATING ECONOMIC PERFORMANCE

Flattening the Business Cycle

Economies

flow through various stages of a

business cycle

Recessioncyclical

economic contraction that

lasts for six months or longer.

17

FOUR STAGES OF THE BUSINESS

CYCLE

18

PRODUCTIVITY AND THE NATIONS

GROSS DOMESTIC PRODUCT

Productivityrelationship between the

goods and services produced in a nation each
year and the inputs needed to produce them.

Gross domestic productthe sum of all

goods and services produced within a
nations boundaries each year.

19

PRICE-LEVEL CHANGES

Inflationrising prices caused by a

combination of excess consumer demand and
increases in the costs of raw materials,
human resources, and other factors of
production.
Hyperinflationeconomic

situation
characterized by soaring prices

20

PRICE-LEVEL CHANGES

Demand-pull inflation
Excess consumer demand

Cost-push inflation
Generated by rises in costs of factors of
production

Recent Fears about Deflation

21

MEASURING PRICE LEVEL CHANGES

Consumer Price Index (CPI)measures the

monthly average change in prices of goods
and services
Market

Basketcompilation of the goods and

services most commonly purchased by urban
consumers

Producers Price Index (PPI)

For

Finished Goods
For Intermediate Goods

22

CONTENTS OF THE CPI MARKET

BASKET

23

EMPLOYMENT LEVELS

Unemployment rate an
indicator of a nations
economic health
Top

Job Losses by Industry in

the Recent Recession

24

FOUR TYPES OF UNEMPLOYMENT

25

26