chapter 1 understanding the us business system 1 reference: ebert & griffin (2007)....

Chapter 1Understanding the US Business System

1Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Economic Systems around the World

• Different countries run their businesses in different ways. This is because the economic systems ( االقتصادية in countries are (النظمdifferent.

• A country’s economic system decides how the country’s resources(الموارد) are divided among its citizens (people).

1–2Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Factors of Production Factors of Production Resources a country use to produce goods & services

1–3

There are 5 basic Resources:

1.Labor: The people who work in businesses also called human resources (الموارد).

2.Capital: The money needed to start and operate a business.

3.Entrepreneurs: People who start new businesses.4.Physical Resources: These are the tangible

things businesses need to operate (the (ملموس)things we can see and touch).

5.Information Resources: Information and data used by businesses.

How Are Factors of Production Allocated

Economic systems: how the country’sresources are divided among its citizens

how the factors of production / (المواطنون)( اإلنتاج .are managed(عوامل

There are three types: 1. Planned economies (sometimes called

command economies)2. Market economies3. Mixed economies


PLANNED ECONOMIES

1. Planned Economies (sometimes called Command Economies) – these are controlled by the government of the country – the government makes all or most decisions on what goods to produce and where they will be sold (North Korea, Cuba, North Vietnam)

Communism and socialism are the two basic forms of planned economies`

• (4th Page 7; 5th Page 8)


PLANNED ECONOMIES SOCIALISM / COMMUNISM

In the socialist or communist economic systems, the government of the country owns and operates ( تمتلكالصناعات ) some major industries (وتدير and private individuals own and operate other (الرئيسيةless important industries

The government may own and operate banking, communication, and transportation while individuals own and operate clothing stores, restaurants, garages, etc.

The main idea of socialism/communism is to have an equal distribution of wealth (الثروة)in society – a decent lifestyle for all citizens


MARKET ECONOMIES

2. Market Economies – a way for buyers and sellers to exchange goods or services in which both have freedom of choice ( حرية(االختيار

The buyer has freedom to pay the amount of money he or she wishes

The seller has freedom to charge the amount of money he or she wishes for a product or service


MARKET ECONOMIES - CAPITALISM

A free-market economy is called capitalismCapitalism allows private ownership ( الملكيةof the factors of production (الخاصة

Capitalism encourages entrepreneurs ( وتشجعاالعمال to start small businesses (منظمى

Capitalism follows the rules of “supply and demand” of products and services

In capitalist economics, there is inequality ( عدم of wealth in society – there are both (المساواةvery rich and very poor people.


3 - MIXED MARKET ECONOMIES The economies of many countries have some of the features

of a planned economy and some of the features of a market economy

Individuals may own and operate businesses

The government owns and operates “essential services” such as health care, the electricity (األساسية)company, and the postal service – as it is in Bahrain


PRIVATIZATION

In some countries, “essential services” such as the electricity company have gone through a process called “privatization”

Privatization allows a government service to be purchased and operated by a private company (e.g. Telecommunications in Bahrain)


Economic SystemsPlanned Economies Market Economies

*government controlled economies.

communism Socialism Mixed Market Economies.

Capitalism Input &output Market

Privatization

*Free market Economies.

*Individuals have access or ownership of factors of production.

*Government control all or most factors of production.

The process of selling essential government

enterprises to the private sector.

*Free market economyfollows the rules of supply and demand.*Government control is limited, most enterprises are private.

•Businesses and consumersConnected in circular flow.

*Not “Pure” plannedor “pure” market economies.*Government own and operates essential services.*most countries have this kind of economy.

*Government own and Operate some major industries.*Private Individuals own and operate otherless important industries.

*Only government owned and Operated enterprises.

**Factors of production:1-Labour.2-Capital.3-Entrepreneurs.4-Physical resources.5-Information resources. 1–11

Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Supply and Demand Drive the U.S. Economic System

• Supply (يزود): – The willingness and ability

of producers to offer a good or service for sale

• Law of Supply:– Producers will supply

(offer) more of a product for sale as its price rises and less as its price drops. (price = supply)


Supply and Demand Drive the U.S. Economic System (cont’d)

• Demand (الطلب):– The willingness and ability of

buyers to purchase a good or service

• Law of Demand:– Buyers will demand (purchase)

more of a product as its price drops and less as its price increases.

( Price = Demand)


Example: Demand and Supply SchedulesExample: Demand and Supply Schedules

1–14

Quantity of Quantity ofPrice Pizzas Demanded Pizzas Supplied

$2 2000 100$4 1900 400$6 1600 600$8 1200 800

$10$10 10001000 10001000$12 800 1200$14 600 1300$16 400 1600$18 200 1800$20 100 2000

Evaluation of the relationships between level of demand and supply at different price levels.

Demand Demand andand

Supply (1)Supply (1)

1–15

200

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400

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600

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800

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1000

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1200

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1400

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1800

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2000

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$20 -

18 -

16 -

14 -

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8 -

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4 -

2 -

Quantity of Pizzas Demanded

Pri

ce o

f P

izza

s

Demand Curve

Demand Curve

Demand curve: is graph that shows how many units of a product would be demanded (bought) at different prices.

Demand Demand and Supply and Supply

(2(2))

1–16

Quantity of Pizzas Supplied

200

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400

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600

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800

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1000

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1200

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1400

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$20 -

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8 -

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Pri

ce o

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izza

sSupply CurveSupply Curve

Supply curve: is graph that shows how many units of a product would be supplied (offered for sale) at different prices.

Demandand

Supply

1–17

Quantity of Pizzas per Week

200

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400

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600

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800

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1000

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1200

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1400

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$20 -

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8 -

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Pri

ce o

f P

izza

s Demand Curve

Demand Curve

Supply Curve

Supply Curve

Equilibrium PriceEquilibrium Price

Market Price (Equilibrium price) :Profit maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal.

Supply = Demand

Surplus and Shortage• Surplus (الفائض): When quantity supplied is

greater than quantity demanded.

Supply >Demand• Shortage (النقص): When quantity demanded

is greater than quantity supplied.

Supply < Demand


The U.S. Economy is a Private Enterprise System

To succeed (النجاح) private enterprise needs four element:

Four Key Elements:• Private Property Rights.• Freedom of Choice.• Profits.• Competition.

Private enterprise-Individuals are free to pursue their own interests without too much (متابعة)government restriction.


Four element of private enterpriseo Private Property Rights ( الخاصة الملكية :(حقوق

• Access or ownership of the factors of production must be in the hands of individuals.

• Individuals must have the right to buy and sell goods and properties when they wish.

o Freedom of choice ( االختيار :(حرية• An Individual has the right to work for any employer they

choose and to select the products they want to buy.• A producer of goods or service can choose what to

produce and whom to hire (توظيف)as employees


Four element of private enterpriseo Profits (األرباح):

• Individuals has the chance make more money working for their company than they would make working for someone else.

• Individuals can choose to earn a set salary working for others, or start their own business to try make more money.

o Competition (المنافسة):• Many companies offer same or similar products, the

customer can choose to buy from any company based on the quality and price of the product.


Types of Competition• Even in a free enterprise system, not all

industries are equally competitive. There are four degrees of competition:1. Perfect Competition.2. Monopolistic Competition.3. Oligopoly.4. Monopoly.


Perfect competition1. This is when all firms in the industry are small .2. The number of firms in the industry is large.

Therefore, no firm is powerful enough to determine price, as price is set by demand and supply.

Example: Vegetables market: Products offered are same or similar. Buyers and sellers know the price. Easy to enter or leave the market Prices are set by supply and demand.


Monopolistic Competition

1–24

• A fewer seller of products but still many buyers.

• Sellers try to make their product different.

Example: fast food restaurants, soft drinks.

Oligopoly• A small number of sellers offer products.

• They are large companies they can influence the price.

• The price of similar products offered by different companies are generally the same.

• Example: Airplanes manufacturers.Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Monopoly

• A Monopoly exists when there is only one producer in a market or industry.

• A single supplier or producer has complete control over the prices it charges.

• The customers want the product, they must pay the price asked.Example: Electricity supplier.


Degrees of CompetitionCharacteristic : Perfect

Competition Monopolistic Competition

Oligopoly Monopoly

Example: Fruit & veg. shop Cold Store Airlines Electricity Provider

No. of Competitors:

Many Many, but fewer than pure competition

Few None

Ease of entry into the industry:

Relatively easy Fairly easy Difficult Regulated by Government

Similarity of goods being provided:

Identical Similar Can be similar or different

Neither

Level of controls of price by individual firms:

None Some Some Considerable


chapter 1 understanding the us business system 1 reference: ebert & griffin (2007)....

Documents

market economies capitalism

free market economies

pure market economies

mixed economies

prentice hall slide

business essentials

command economies

economiesmarket economies