lesson 4: essential economic principles
DESCRIPTION
Watch this with a 10-15 minute audiotrack at http://vimeo.com/novusprogram/lesson4 This lesson will explain some of the basic economic concepts that a business owner needs to understand. These concepts apply both to large-scale situations (also known as macroeconomics) and to individual situations (known as microeconomics). While those topics are discussed in more detail in other lessons, this one provides a foundation. The Novus project is a combination of video tutorials designed to be used in conjunction with a free business simulation software program. The Novus Business and IT Program contains 36 business and IT training videos, covering basic finance, accounting, marketing, economics, business strategy, Word, Excel, and PowerPoint. Users will have an opportunity to apply the lessons in the Novus Business Simulator. Over six rounds, the user or teams will have to make decisions on capital purchases, financing, production, financing, and human resources for a microbrewery. This channel has arranged the 36 video lessons into the order in which they are meant to be used with the simulator. To watch this slideshow as a video, please go to our Vimeo page at: https://vimeo.com/novusprogram. To download our free business simulation software, please go to our SourceForge page at: http://sourceforge.net/projects/novus/.TRANSCRIPT
Novus Business and IT Training Program
Essential Economic Principles
Objective: To understand the basic economic concepts that govern businesses and how they can influence the behaviors of consumers and suppliers.
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Economic Basics
• Scarcity – What we want is more than what we have
• Economics – How do we use limited resources?
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Types of Economies
• Planned
• Market
• Mixed
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Inputs and Outputs
GOODS and SERVICES(Outputs)
TYPES OF RESOURCES (Inputs)
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Consumers and Suppliers
• Consumers – those who buy• Suppliers – those who sell• Businesses can be both
• Workers are suppliers
Consumer of flour
Supplier of bread
The Flow of Income
Inputs for Production
Outputs of Production
$$$ Consumer Spending
$$$Salaries, Wages
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Economic Basics
• Supply and Demand
– The most basic economic concept
– Supply = what is available in the market
– Demand = what consumers want
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Supply and Demand
Equilibrium
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What Determines Demand?
• Income• Preferences• Weather• Time of Year• Relative Price• Consumer Expectation
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What Changes Market Demand?
• Distribution of Wealth
• Community Habits
• Number of Buyers
• Population Growth
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Supply, Demand and Price
• Higher demand+ same supply = higher equilibrium price
• Lower demand+ same supply = lower equilibrium price
• Higher supply+ same demand = lower equilibrium price
• Lower supply + same demand = higher equilibrium price
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Higher Demand = Higher Price
Price
P-1
Q-1
Demand Supply
Quantity
P-2
Q-2
Demand Supply
Normal Winter Colder Winter
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Opportunity Cost
• Relationship between scarcity and choice
• Different than financial cost
• Not having A because you chose B
• Applies to consumers and suppliers
Trade Improves the Quality of Life
• Everyone has different resources, skills, knowledge, etc.
• If people specialize in what they are best at, they can trade with others to make better use of everyone’s resources.
• Example - Time to prepare 1 kg of butter or cheese:
3 Hours
1 Hour
2 Hours
4 Hour
Butter Cheese You
Your Neighbor
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Summary