Introduction to Business

Lecture: 2
Lecturer: S M Shahidul Alam
Date: 4/10/2017
 Learning Goals

Distinguish between micro- Identify and describe the four

1 5 stages of the business cycle.
economics and macroeconomics.

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

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

Compare the three major types of Describe the major global

4 8 economic challenges of
economic systems.
the 21st century.
 Economics

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.
 on omi c s
Microec

The study of small

economic units, such
as individual
consumers, families,
and businesses.
 rs D r i v i n g
Fa c t o
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 Cur v e
Dema

A change in overall demand, shifts to a new demand

curve.
Sup p l y Cu r v e
• Supply curve - shows the relationship between different
prices and the quantities that sellers will offer for sale,
regardless of demand.
 o rs D ri v i n g
Fact
Supply

Production plays a central role in determining the overall

supply of goods and services.
 S u p p l y a n d
How
I n t e ra 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.
 onom i c s
Macroec
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)
Ca p i t a l i sm
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 Com p eti ti on
Typ es o
 d Ec o n o m i e s
Pl a n n e
Government controls determine business ownership, profits,
and resource allocation.

Communism
 Property owned and shared by the
community under a strong central
government.
 Adopted in early 20th century by
many nations, but government-
owned
monopolies often suffered from
inefficiency.
Socialism
 Government ownership and
operation of major industries,
such as healthcare or
communications.
 Some private ownership of
industry allowed.
 Mixe d M a r k e t
Ec on om ie 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.
 in g E co n om ic
C o mp a r
Systems
 g E c o n o mi c
Ev a l u a t i n
Perf o rm 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
 t y a n d G D P
Productivi

• 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.
 ev el Cha ng es
Pric e-L
• 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.
 i n g P ri c e
Measur
l C h a n g es
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”
 en t L e ve l s
Employm

The unemployment rate is the percentage of total workforce actively

seeking work but currently unemployed.
 h e E co n om y’ s
Man ag in g t
Pe r f o 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.
 Fisca l P ol 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 on om ic
Global
Challenges
 International Terrorism

 Shift to a global information economy

 Aging of the world’s population
 Enhancing competitiveness of every country’s
workforce