Ch. 3 The Economic Impact بسم الله الرحمن الرحيم.
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Transcript of Ch. 3 The Economic Impact بسم الله الرحمن الرحيم.
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Ch. 3 The Economic Impact
الرحيم الرحمن الله بسم
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Chapter Objectives
1. Distinguish between microeconomics and macroeconomics.
2. Explain the factors that drive demand and supply.3. Compare the three major types of economic
systems.4. Describe each of the four different types of market
structures in a private enterprise system.5. Identify and describe the four stages of the business
cycle.6. Explain how productivity, price-level changes, and
employment levels affect the stability of a nation’s economy.
7. Discuss how monetary policy and fiscal policy are used to manage an economy’s performance.
8. Describe the major global economic challenges of the 21st century.
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Chapter Overview
Economics—social science that analyzes the choices made by people and governments in allocating scarce resources.
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Economics
Microeconomics—study of small economic units, such as individual consumers, families, and businesses.
Macroeconomics—study of a nation’s overall economic issues, such as how an economy maintains and allocates resources and how government policies affect the standards of living of its citizens.
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Microeconomics:The Forces of Demand and Supply
Demand—willingness and ability of buyers to purchase goods and services.
Supply—willingness and ability of sellers to provide goods and services.
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Factors Driving Demand
Each person must choose Between saving and spending How to allocate spending
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Factors Driving Demand Demand Curve
Graph of the amount of a product that buyers will purchase at different prices
Demand curves typically slope downward and 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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Expected Shifts in Demand Curves
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Factors Driving Supply
Businesses must chose how to use their resources 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 Supply
Central role in determining the overall supply of goods and services is played by factors of production Natural resources Human resources Physical facilities Entrepreneurship
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Expected Shifts in Supply Curves
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How Demand and Supply Interact Separate shifts in demand and supply
have obvious effects on product price and availability
Equilibrium price
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Law of Supply and Demand
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Macroeconomics: Issues for theEntire Economy
Capitalism: The Private Enterprise System and Competition. Private enterprise system—economic
system 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: Issues for theEntire Economy
Capitalism: The Private Enterprise System and Competition Pure competition Monopolistic competition Oligopoly Monopoly Deregulation
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Types of Competition
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Planned Economies: Communism and Socialism
Communism: planned economic system in which private property is eliminated, goods are owned in common, and factors of production and production decisions are controlled by the state
Socialism: planned economic system characterized by government ownership and operation of all major industries
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Planned Economies: Communism and Socialism
What’s Ahead for Communism? Many formerly communist nations
have undergone dramatic changes in recent year after introducing private enterprise systems
Has not been smooth Communism remains firmly
entrenched in just a few countries
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Mixed Market Economies Economic system that combines
characteristics of both planned and market economies in varying degrees, including the presence of both government ownership and private enterprise Privatization
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Evaluating Economic Performance Flattening the Business Cycle
Economies flow through various stages of a business cycle
Recession—cyclical economic contraction that lasts for six months or longer.
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Four Stages of the Business Cycle
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Productivity and the Nation’s Gross Domestic Product
Productivity—relationship between the goods and services produced in a nation each year and the inputs needed to produce them.
Gross domestic product—the sum of all goods and services produced within a nation’s boundaries each year.
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Price-Level Changes
Inflation—rising prices caused by a combination of excess consumer demand and increases in the costs of raw materials, human resources, and other factors of production. Hyperinflation—economic situation
characterized by soaring prices
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Price-Level Changes
Demand-pull inflationExcess consumer demand
Cost-push inflationGenerated by rises in costs of factors of production
Recent Fears about Deflation
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Measuring Price Level Changes
Consumer Price Index (CPI)—measures the monthly average change in prices of goods and services Market Basket—compilation of the goods and
services most commonly purchased by urban consumers
Producers Price Index (PPI) For Finished Goods For Intermediate Goods
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Contents of the CPI Market Basket
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Employment Levels
Unemployment rate— an indicator of a nation’s economic health Top Job Losses by
Industry in the Recent Recession
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Four Types of Unemployment
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Managing the Economy’s Performance
Monetary Policy—government actions to increase or decrease the money supply and change banking requirements and interest rates to influence banker’s willingness to make loans.
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Managing the Economy’s Performance
Fiscal Policy—government spending and taxation decisions designed to control inflations, reduce unemployment, improve the general welfare of citizens, and encourage economic growth.
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Fiscal Policy Budget—organization’s plan for how it
will raise and spend money during a given period of time.
Budget deficit—funding shortfall that results when the government spends more than the amount of money it raises through taxes and fees
National debt Budget surplus Balanced budget
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Where Federal Tax Revenues Come from
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How Your Tax Dollars Are Spent
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The U.S. Economy: A Roller Coaster Ride
Economic recession, wars, and terrorism battered the U.S. economy. Unemployment Inflation and Deflation Productivity Consumer Spending
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Creating a Long-Term Global Strategy
Global Economic Challenges International terrorism Shift to a global Information economy Aging of the world’s populations Improving quality and customer service Enhancing competitiveness of every
country’s workforce.
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