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Chapter 2 - Understanding Economics and How it Affects Business

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Lauren Donovan

on 1 February 2017

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Transcript of Chapter 2 - Understanding Economics and How it Affects Business

How Economics Affects Business
1. Define economics
2. Differentiate between free-market and planned economies
3. Discuss tools that tell us if the economy is doing well

Learning Goals
1.) Supply and demand
2.) Competition
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
Mixed Economies
The Business Cycle
Rises and Falls Over Time
GDP – Gross Domestic Product
Unemployment Rate
Consumer Price Index
Producer Price Index
Key Economic Indicators
Managing the Economy
Monetary Policy =
Federal Reserve actions

interest rates = slows spending

interest rates = stimulates spending
Fiscal Policy
= government actions (taxes and spending)

Increase or decrease taxes
Increase or decrease spending
Managing the Economy
The sales tax on alcohol including wine and beer is increased by $0.10.
Interest rates at local banks drop by 1%.
$100 Million is spent rebuilding roads, highways and bridges.
The Federal Reserve increases interest rates by .25%
Medicare is funded through taxes.
Monetary or Fiscal Policy
Let's pretend that there is $1 Million sitting on this table. How should we allocate it?
Activity: Applying Economic Indicators
Consider DCCC:
1. How might an increase in the
unemployment rate
in Delaware County impact the college?
2. How might a
decrease in the prices
of local four year colleges impact DCCC?
3. How might an increase in the
affect how DCCC sets its tuition price?
4. How might an increase in the
affect how DCCC sets its tuition price?
5. Does a decrease in the GDP affect DCCC?
Gov't = Political elite (control all resources)
Government controls major industries;
businesses control less vital industries
1. government supplies some goods/services
2. companies supply most goods/services
3. competition is strong
4. supply and demand

Fiscal Policy
Monetary Policy
The Government's Role = Economic Stability
The study of how scarce resources
are used to produce needed
goods and services.
1. Free-market System
2. Planned System
Types of Unemployment
World Economic Systems
Features of the Free-Market
Let's examine the definition ...
Factors of Production
What Are Resources?
Examples: healthcare, education, transportation
What do you need?
Where does it come from?
Everything we need
food, beverage, shelter, entertainment, clothing, education...
Who satisfies these needs?
Free-Market System
goods and services are produced
by individuals and companies
Planned Systems
Government controls
most or all resources
Capitalism and Mixed Capitalism
Socialism Communism
Natural Resources
Human Resources
Identify the Factors of Production
Delaware County Community College rests on twenty-five acres of land. They utilize the pond outside of the STEM building to landscape their property. They employ 125 full-time faculty and 250 part-time faculty who teach in a variety of academic disciplines. Faculty hold masters and doctoral degrees. In 1961 the College's founders took a risk and approached the local and state government to propose the institution of a community college in Delaware County. The College utilizes a variety of technologies to deliver instruction and manage the college operations.
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