Introduction To Economics

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Introduction To Economics
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Economics

• Study of how individuals, families, businesses,
  and nations make choices about how to use scarce
  resources to fill their wants and needs

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Examines facts to understand

• How people make choices
• AND
• Gain a better understanding of the costs
  benefits of resources

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Wants Needs

• Needs
• Things/objects people cannot live without
• Things I need to live include

• Wants
• Things that people desire everything else other
  than basic needs
• Things I want to have include

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How do we satisfy unlimited wants with limited
resources?

• Make Choices

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Because everything that exists is limited

• Why do we make Choices?

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Scarcity

• Economic condition in which people do not have
  enough income, time, or resources to satisfy
  every desire
• Basic problem in economics

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Factors of Production

• Resources that are used to make goods services

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Goods Services

• Goods
• Objects that satisfy peoples wants
• Can be touched

• Services
• Actions that satisfy peoples wants
• Cannot be touched

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Land

• Natural Resources
• All things found/not manufactured or touched by
  man

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Labor

• Human Resource
• The work that people do
• Anyone who works

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Capital

• Manufactured goods used to make goods services
• Machinery, tools, buildings

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Productivity

• Ability to produce greater quantities of goods
  services faster and more efficiently

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Entrepreneurship

• Ability of risk taking individual to develop new
  products and start new businesses to make a
  product/profit

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TRADE - OFFS

• OPPORTUNITY COSTS

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Trade - Offs

• Exchanging one thing for the use of another
• Sacrificing one good or service to
  produce/purchase another

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Opportunity Cost

• The value of the next best alternative that had
  to be given up for the alternative chosen
• Thing given up was given a lesser value than the
  thing chosen

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Economic System

• The way in which a nation uses its resources to
  satisfy its peoples wants needs

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How is an economic system determined?

• Values goals of a nation

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Different nations have different systems

• All have to answer the

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4 Basic Economic Questions
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Questions, Questions, Questions..

• What/how much goods services should be
  produced?
• How should goods services be produced?
• For whom are goods services produced?
• Who should produce goods services?

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4 Types of Economic Systems
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Traditional System

• Qs are answered by tradition or customs
• The way things have always been done.

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Command/Controlled System

• One person or small group
• Answers Qs
• Controls resources/factors of production
• Decides how goods services will be distributed
• Communism

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Market System

• Govt does not get involved in business
  transactions
• Individuals
• Own/control factors of production
• Answer Qs
• Decide how market will benefit them
• Capitalism

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Mixed System

• Most systems are mixed
• Contain elements of a command market economy
• Varies system to system, country to country

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Pure Capitalism

• Adam Smith
• Invisible Hand
• Economic system in which private
  individuals/businesses own factors of production
  and make economic decisions w/out govt
  interference

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Characteristics of theAmericanEconomy
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Pure market economic systems have

• Little/no govt control
• Freedom of enterprise
• Freedom of choice
• Private property
• Profit incentive
• Competition

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Little/no govt control

• US Capitalism
• Economic system in which private individuals own
  the factors of production decide how to use
  them within legislated limits

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Benefits of Free Enterprise

• Economic/Individual freedom
• High standard of living
• Different lifestyles

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Types of Business Organizations

• Sole Proprietorship
• Partnerships
• Corporations

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Sole Proprietorship

• Most basic/common type
• Owned/operated by 1 person
• Easiest/least expensive to start run

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Partnership

• 2 or more people own/operate
• Partners sign legal agreement
• Describes duties of partners
• Profit distribution
• Asset distribution

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Corporations

• Owned by many people but treated by law as one
  person
• Can
• Own property
• Pay taxes
• Make contracts
• Sue and be sued
• Makes up 20 of all businesses
• Earns 90 of all revenues

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Sell Stock

• Common Stock
• Voting rights
• Portion of future profits
• Not guaranteed a dividend

• Preferred Stock
• NO voting rights
• Guaranteed future profits/dividend

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Franchise

• Contract in which one business (franchiser) sells
  to another business (franchisee) the right to use
  the franchisers name sell its product

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Nonprofit Corporation

• Legally incorporated by the state has most
  characteristics of a normal corp.
• BUT
• Does not pay taxes
• Does not issue stock

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S Corporation

• Sub chapter S (tax statute)
• Small 35 stockholders or less

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Government Owned

• Government Runs
• Post office/ FDIC

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Competition Business
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Competition

• Rivalry among producers/sellers of similar goods
  services to win more business by offering the
  lowest prices/better quality

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Advantages

• Provides choices
• Lower prices

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Benefits

• Stable prices
• Wide variety of products

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Pure Monopoly

• Single supplier makes up an entire industry for a
  good/service with no close substitutes

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Conditions of

• Single seller
• No entry into industry
• Barriers to Entry
• No substitutes
• 4. Almost complete control of price

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Oligopoly

• Industry dominated by few sellers who have some
  control over price

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• Product Differentiation
• Manufacturers use small diffs. in quality
  features to try to differentiate between similar
  goods/services

• Interdependence
• Whatever one firm/business does the others will
  follow

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Government Policy Competition
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John D. Rockefeller
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Antitrust Legislation

• Federal/state laws passed to prevent new
  monopolies from forming break up those that
  already exist

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Sherman Antitrust Act 1890

• Outlawed agreements conspiracies to restrain
  trade
• Illegal to monopolize or attempt to monopolize
  commerce

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Merger

• A combined company that results when one
  corporation buys more than ½ the stock of another
  corporation and thus controls the 2nd corporation

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3 Types..

• Horizontal
• 2 Corporations merge that are the same type of
  business
• Vertical
• Corporation in a chain of supply merge
• Conglomerate
• Lg. Corporation involved in at least 4 unrelated
  businesses

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Regulatory Agencies

• Tries to promote efficiency competition
• Regulation of business pricing product quality

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Promote Efficiency Competition
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Deregulation

• Reduction of govt rules control over business
  activity

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Demand

• The willingness ability to buy a product at a
  particular price
• Occurs when a product in actually sold

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Demand Curve

• Graphic representation of a demand schedule
• Shows what amounts of a product will be demanded
  at different prices

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Substitution Effect

• If the price of one good rises and another does
  not, consumers will substitute the lower priced
  good.

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Elastic Demand

• A change in price of a product WILL affect the
  amount of a product that people are willing to buy

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Inelastic Demand

• A change in price WILL NOT affect the amount of a
  product that people are willing to buy

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Changes In Demand
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Income

• Amount of a person makes INCREASES, demand
  INCREASES
• Amount of a person makes DECREASES, demand
  DECREASES

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Tastes Preferences

• Peoples tastes change constantly
• Fads
• A temporary fashion adopted with wide enthusiasm

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Substitute Goods

• Goods that can be used in place of each other

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Complementary Goods

• Products that must be used with eachother

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Changes In Population

• Population UP demand UP
• Population DOWN demand DOWN

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Supply

• Willingness ability of producers to provide
  products at various prices during a specific
  period of time

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Quantity Supplied

• The amount of a good/service that a producer is
  willing able to supply at a specific price

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Supply Curve

• Graphic representation of the supply schedule

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Costs of Production

• Ability of producers to produce a product

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Supply DemandTogether
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Equilibrium Price

• The price at which the amount producers are
  willing to supply is equal to the amount
  consumers are willing to demand

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Prices are signals

• Rising prices
• Producers supply more
• Consumers demand less

• Falling prices
• Producers supply less
• Consumers demand more

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Shortage

• More goods are demanded than supplied

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Surplus

• More goods are supplied than demanded

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MARKETING

• The Changing Role of Marketing

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Marketing

• All activities needed to move goods services
  from producer to consumer
• Includes
• Market Research
• Advertising Promotion
• Distribution

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Purpose

• Convince customers a particular product will add
  to their utility

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Market Research

• Gathering, recording, analyzing data about the
  types of goods services that people want
• Quality, features, styles
• Types of packaging
• Prices
• How are competitors doing?

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Testing New Products
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The Marketing Mix
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Marketing Strategy

• Details how a company will sell its product
  effectively
• Combines the 4 Ps of marketing

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The 4 Ps of Marketing
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Product (1)

• What types of services will be offered?
• How will product be packaged?
• What kind of product identification to use?

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Product Identification

• Meant to attract customers
• Look at, buy, remember a particular product
• Logos, colors, songs, jingles, packaging

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Price (2)

• Usually determined by supply demand
• Product priced low at first to attract customers

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Place (3)

• A marketing department must decide where its
  company product should be sold
• Specialty store
• Supermarket
• Internet
• Catalogs

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Promotion (4)

• Use of advertising to inform customers that a
  new/improved product or service is available
  persuade them to buy it.

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Depends on

• The product
• Type of consumer
• Amount of a company wants to spend

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Types of Promotion

• Direct Mail Advertising
• Using a mailer that usually includes a letter
  describing product/service order
  blank/application form

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Types Contd

• Coupons
• Rebates
• Samples
• Gifts
• Where/how product is displayed

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Product Life Cycle

• Series of stages that a product goes through from
  1st introduction to complete withdrawal from
  market

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4 Stages

• Introduction
• Growth
• Maturity
• Decline

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FINANCING PRODUCING GOODS
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MANAGING BUSINESS OPERATIONS

• Management
• Organizing coordinating factors of production
  for maximum efficiency.

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Responsibilities of a Manager

• Decide companys immediate activities
• Day-to-day operations
• Employee motivation
• Long range plans

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FINANCING BUSINESS OPERATIONS
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Financing Finance

• Finance
• Activity concerned with sources use of in
  business

• Financing
• Obtaining and/or capital for business expansion

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FINANCING IS KEY IN THE FREE ENTERPRISE SYSTEM

• Savings turn into investments
• People save by depositing into banks
• Banks make deposits available to finance growth

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Cost Benefit Analysis

• Financial process in which a business estimates
  the cost of any action compares it with
  benefits of that action

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The Steps

• Estimate how much expansion will cost
• Calculate revenues
• Calculate expected profits
• Calculate how much it will cost to borrow to
  finance expansion

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Undertake an activity up to the point at which
the additional benefit the additional cost.
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Why Finance?

• Expansion will lead to higher profits in the
  future

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REMEMBER!

• resources go where highest profit is expected

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To find right type of financing for your business

• Interest costs
• Financial condition of company
• What is the market like?
• Who controls the company?

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Production

• Process of changing resources into goods that
  satisfy needs wants of individuals other than
  businesses

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Types of goods

• Consumer goods
• Goods produced for individuals
• Producer goods
• Goods produced for businesses to use in making
  other goods

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Assembly Line

• System in which a good is being produced moves on
  a conveyor belt

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Perfection!

• Henry Ford perfected the use of the assembly line!

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Division of Labor

• Breaking down a job into smaller tasks
• Each task is done by a different person
• Production is quicker more efficient

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The American Labor Force
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Civilian Labor Force

• Total number of people 16 years old who are
  either actively employed or actively seeking work.

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Categories of Workers

• Type of Work
• Training/Skill Level
• Education

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Blue Collar Workers

• Category of workers employed in crafts,
  manufacturing, nonfarm labor
• Steel workers
• Construction workers

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White Collar Workers

• Category of workers employed in offices, sales,
  or professional positions.
• Secretaries
• Heads of corporations

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Service Workers

• People who provide services directly to
  individuals.
• Hairdressers
• Food service
• Delivery persons

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Categories of Skill Level

• Unskilled Workers
• People whose jobs require no special training
• Semiskilled Workers
• People whose jobs require some training use of
  modern technology
• Skilled Workers
• People who have learned a trade/craft through
  vocational or as an apprentice to an experienced
  worker

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Professionals

• Highly educated individuals with college degrees
  additional education training
• Teachers
• Architects
• Doctors

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Organized Labor
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Labor Unions

• Reasons For Development

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1800s

• Poor working conditions/wages
• No benefits
• Workers organized to gain better conditions

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Labor Union

• Association of workers organized to improve wages
  and/or working conditions for its members.

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Collective Bargaining
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Process by which unions employees negotiate the
conditions of employment
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Company Vs. Union

• Company
• Keep wages low to stay competitive
• Union
• Increase wages benefits

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Negotiations

• Wages
• Working hours
• Benefits
• Working conditions
• Job security
• Grievance guidelines
• Cost of Living adjustments

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What if negotiations stall?
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Mediation

• A neutral person tries to get both sides to reach
  an agreement during negotiations
• Suggests solution/keep both sides talking

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Arbitration

• Union management submit issues they cannot
  agree to a 3rd party for a final decision
• Must accept decision