ch- basic economics

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Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.3-1

Chapter OverviewChapter Overview

Economicssocial science that analyzesthe choices made by people and

governments in allocating scarce resources.


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EconomicsEconomics

Microeconomicsstudy of small economicunits, such as individual consumers, families,

and businesses.

Macroeconomicsstudy of a nations

overall economic issues, such as how aneconomy maintains and allocates resources

and how government policies affect the

standards of living of its citizens.


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Microeconomics:Microeconomics:

The ForcesofDemand and SupplyThe ForcesofDemand and Supply

Demandwillingness and ability of buyers to

purchase goods and services.

Supplywillingness and ability of sellers to

provide goods and services.


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Factors Driving DemandFactors Driving Demand

Each person must chooseBetween saving and spending

How to allocate spending


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Factors Driving DemandFactors Driving Demand

Demand Curve

Graph of the amount of a product that

buyers will purchase at different prices

Demand curves typically slope downwardand to the right, meaning that lower prices

attract larger purchases


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Demand Curve for Gasoline


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Shift in the Demand Curve for Gasoline


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Factors Driving SupplyFactors Driving Supply

Businesses must chose how to use theirresources to obtain the best profits

Supply Curve

Shows the relationship between different

prices and the quantities that sellers will

offer for sale, regardless of demand


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Supply Curve for Gasoline


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Factors Driving SupplyFactors Driving Supply

Central role in determining the overall supplyof goods and services is played by factors of

production

Natural resources

Human resources

Physical facilities

Entrepreneurship


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How Demand and Supply InteractHow Demand and Supply Interact

Separate shifts in demand and supply haveobvious effects on product price and

availability

Equilibrium price


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Law ofSupply and Demand


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Macroeconomics: Issuesfor theMacroeconomics: Issuesfor the

Entire EconomyEntire Economy

Capitalism: The Private Enterprise System

and Competition.

Private enterprise systemeconomicsystem in which business success or

failure depends on how well firms match

and counter the offerings of competitors;

also known as capitalism.


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Macroeconomics: Issuesfor theMacroeconomics: Issuesfor the

Entire EconomyEntire Economy

Capitalism: The Private Enterprise System

and Competition

Pure competition

Monopolisticcompetition

Oligopoly

Monopoly

Deregulation


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TypesofCompetition


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PlannedEconomies:PlannedEconomies:

Communism and SocialismCommunism and Socialism

Communism: planned economic system in

which private property is eliminated, goods

are owned in common, and factors ofproduction and production decisions are

controlled by the state

Socialism: planned economic system

characterized by government ownership andoperation of all major industries


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Four Stagesofthe Business Cycle


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Productivity and the Nations GrossProductivity and the Nations Gross

DomesticProductDomesticProduct

Productivityrelationship between the

goods and services produced in a nation

each year and the inputs needed to produce

them.

Grossdomestic productthe sum of all

goods and services produced within a

nations boundaries each year.


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PricePrice--Level ChangesLevel Changes

Inflationrising prices caused by acombination 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


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PricePrice--Level ChangesLevel Changes

Demand-pull inflationExcess consumer demand

Cost-push inflation

Generated by rises in costs of factors ofproduction

Recent Fears about Deflation


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MeasuringPrice Level ChangesMeasuringPrice Level Changes

ConsumerPrice Index (CPI)

measures the monthly average change

in prices of goods and services


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Employment LevelsEmployment Levels

Unemployment ratean indicator of a

nations economic

health

Top Job Losses byIndustry in the

Recent Recession


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FourTypesofUnemployment


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Managing the EconomysPerformanceManaging the EconomysPerformance

Monetary Policygovernment actions to

increase or decrease the

money supply and

change bankingrequirements and interest

rates to influence

bankers willingness to

make loans.


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Managing the EconomysPerformanceManaging the EconomysPerformance

Fiscal Policy

government spending

and taxation decisions

designed to controlinflations, reduce

unemployment, improve

the general welfare of

citizens, and encourageeconomic growth.


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