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Business and Economics

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Hannah Weiser

on 15 September 2018

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Transcript of Business and Economics

Business and Economics
Professor Hannah Weiser

Learning Objectives
Define business
Identify and describe the factors of production
Describe the private enterprise system
Compare microeconomics and macroeconomics
Explore the forces of supply and demand
Analyze equilibrium price and factors that influence its change
Identify the stages of economic performance
Understand how the economy's performance is measured

Define Business
At the heart of every business endeavor is an exchange between a buyer in need of a good and/or service and a seller who makes a profit
Identify and describe the factors of production
Describe the private enterprise system
Adam Smith
See the Fortune 500 companies this year! Visit:
Economics, Supply and Demand, Equilibrium
Identify the Stages of Economic Performance
Understand how the economy's performance is measured
An economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state
The Invisible Hand
A metaphor conceived by Adam Smith to describe the self-regulating behavior of the marketplace
Laissez Faire
Minimizes government intervention
Regulates economic life
The key premise of capitalism
Each firm must find a competitive differentiation - what separates them from the rest!
Natural Resources
Human Resources
Production inputs that are useful in their natural states (e.g., agricultural land, building sites, forests, and mineral deposits)
Includes everyone who works for an organization (both physical labor and intellectual inputs)
Includes technology, tools, information, and physical facilities
Willingness to take the risks necessary to create and operate a business and to provide innovation
Is a non=profit organization like the Make A Wish Foundation a business too?
*For access issues with this video, please Youtube Batkid and the Make a Wish Foundation
Economists have identified four types of competition—
perfect competition, monopolistic competition, oligopoly, and monopoly.
Types of Competition
Perfect Competition
Perfect competition exists when there are many consumers buying a standardized product from numerous small businesses. Because no seller is big enough or influential enough to affect price, sellers and buyers accept the going price, which is determined by supply and demand
Monopolistic Competition
We still have many sellers (as we had under perfect competition). Now, however, they don’t sell identical products. Instead, they sell differentiated products—products that differ somewhat, or are perceived to differ, even though they serve a similar purpose
Oligopoly means few sellers. In an oligopolistic market, each seller supplies a large portion of all the products sold in the marketplace. In addition, because the cost of starting a business in an oligopolistic industry is usually high, the number of firms entering it is low.
There is only one seller in the market. There are few monopolies in the United States because the government limits them. Most fall into one of two categories: natural and legal.
Compare microeconomics and macroeconomics
Economics is the analysis of the choices people and governments make in allocating resources
The study of small economic units
Issues for the ENTIRE Society
Political, social and legal environments differ in every country to create unique economies, generally classified as follows. The key distinction is who has the
"right to profits."
Economy Classifications
Private Enterprise System (Capitalism)
Government favors a hands-off approach
Marketplace competition regulates economic life
Competition drives prices down, quality up, and increases consumer choice
Planned Economies
Government controls determine business ownership, profits, and resource allocation
Mixed Economies
Economic systems that combine features of private enterprise and planned economies (e.g., Cuba)

Mixture of public and private enterprise can vary widely from country to country
Government ownership and operation of major industries, such as health care or communications with some private ownership of industry allowed (e.g., Canada)
Property owned and shared by the community under a strong central government (e.g., China)
Activity: The Cost-Benefit Principle
The mother of all economic ideas is the cost-benefit principle. It says you should take an action if and only if the extra benefit from taking it is greater than the extra cost. Let's apply this under Microeconomics and how consumer choice relates...
Ex.1: You are about to buy a $20 alarm clock at the campus store next door when a friend tells you that the same clock is available for $10 at the Kmart downtown. Do you go downtown and get the clock for $10 or at the nearby campus store for $20?
This activity has been adapted from the novel "The Economic Naturalist" by Robert H. Flank if you would like to read similar economic scenarios.
Ex.2: You are about to buy a laptop for $2,510 at the campus store next door. You can get the very same laptop at Kmart for $2,500 and it comes with the same warranty for repairs if it breaks at either location. Where would you buy the laptop?
Ex.3: You have two business trips coming up and a discount coupon you can use on only one of them. You can save either $90 on your $200 trip to Chicago or $100 on your $2,000 trip to Tokyo. For which trip should you use your coupon?
Supply: The amount of goods and services for sale at different prices
Explore the forces of supply and demand
Demand: Willingness and ability of consumers to purchase goods and services at different prices
Demand curve shows the amount of a product that buyers will purchase at different prices (lower prices attract larger purchases).
Price is underlying cause of movement, but a variety of factors impact demand such as competition, price, larger economic events, and consumer preferences.
If demand increases/decreases at every price, a whole new curve is created
The supply curve shows the relationship between different prices and the quantities that sellers will offer for sale,
regardless of demand
Sellers prefer to charge higher prices for their product
Movement along the supply curve is the opposite of movement along the demand curve: as prices rise, the quantity that sellers are willing to supply also rises.
Strategic Alliance
A partnership formed to create a competitive advantage for both parties
Analyze equilibrium price and factors that influence its change
Supply and demand curves meet at the equilibrium price
Equilibrium is the price at which the quantity demanded by buyers equals the quantity supplied by sellers. At the equilibrium price every buyer finds a seller and every seller finds a buyer
A surplus results when the quantity supplied of a product exceeds the quantity demanded, generally because the price of the product is above the market equilibrium price.
A shortage results when the quantity demanded for a product exceeds the quantity supplied, generally because the price of the product is below the market equilibrium price
Activity: Understanding the impact of supply and demand and substitute products
Imagine the price of pizza from a restaurant has dramatically increased to $75 a pizza - What will you do? Will your pizza eating habits change? What factors will influence your decision?
Why do you eat pizza? For the taste? To socialize? The price?
What portion of your discretionary income do you currently spend on pizza? How would that change with this price increase?
Would your friends/family influence you?
Are appealing substitutes available?
Would this price result in a surplus or a shortage of pizza? Why?
Business decisions and consumer behavior differ at various stages of the business cycle
High consumer confidence, businesses expanding
Cyclical economic contraction lasting for six months or longer
Extended recession
Declining unemployment, increasing business activity
To see this year's best places to work, visit:
For access issues for this video, please Youtube SAS Best place to work
What is the best place to work in America?
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
Price-Level Changes
Inflation is rising prices caused by a combination of excessive consumer demand and increases in the cost of raw materials
Devalues money - people can purchase less with what they have
Deflation is when prices continue to fall, weakening an economy
Employment Levels
The unemployment rate is the percentage of total workforce actively seeking work but currently unemployed
Changing prices are tracked by the Consumer Price Index (CPI) based on the monthly average change in prices of goods and services
The Bureau of Economic Analysis (BEA) promotes a better understanding of the U.S. economy by providing the most timely, relevant, and accurate economic accounts data in an objective and cost-effective manner. To access this data, visit http://www.bea.gov/
The Consumer Price Indexes (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. To access this data, visit: http://www.bls.gov/cpi/home.htm
To see an average consumer's spending, visit: http://www.nytimes.com/interactive/2008/05/03/business/20080403_SPENDING_GRAPHIC.html?_r=0
The debt clock shows the component of the federal budget and cumulative debt: http://www.usdebtclock.org
Multiple factors are used to determine an economy's performance, including GDP, Price-Level Changes, and Unemployment levels
For more information on the unemployment rate, visit: https://www.bls.gov/cps/
Why it Matters
Understanding business is important because whether you provide a paycheck, or receive one, you are a part of business
Economics is about choices - how we choose to allocate scarce resources and how our choices impact others
Ultimately, economics shapes the business environment
For more information about economic indicators, visit: http://www.multpl.com/sitemap
Full transcript