Economic Challenges Facing Contemporary Business Chapter 3.
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Transcript of Economic Challenges Facing Contemporary Business Chapter 3.
Economic Challenges Facing Contemporary Business
Chapter
3
LO 3.1 Distinguish between microeconomics and macroeconomics. Explain the factors that drive demand and supply.
LO 3.2 Describe the four types of market structures in a private enterprise system, and compare the three major types of economic systems.
LO 3.3 Identify and describe the four stages of the business cycle. Explain how productivity, price level changes, and employment levels affect the stability of a nation’s economy.
Learning Objectives
LO 3.4 Discuss how monetary policy and fiscal policy are used to manage an economy’s performance.
LO 3.5 Describe the major global economic challenges of the 21st century.
The social science that studies the choices people and governments make when dividing up their scarce resources
Demand: The willingness and ability of buyers to purchase goods and services
Supply: The willingness and ability of sellers to provide goods and services
Economics
Test Your Knowledge
Economics is the study of
a. the choices people and governments make when allocating scarce resources.b. profit and loss at companies.c. tax and interest policies.d. demand and supply.
Test Your Knowledge
Economics is the study of
a. the choices people and governments make when allocating scarce resources.b. profit and loss at companies.c. tax and interest policies.d. supply and demand.
Answer: A
Microeconomics
The Forces of Demand and Supply
The study of small economic units, such as individual
consumers, families, and businesses
Factors Driving Demand
Demand curve: A graph of the amount of a product that buyers will
purchase at different prices
Driven by variety of factors such as competition, price, larger
economic events, and consumer preferences
Demand Curve
A graph of the amount of a product that buyers will
purchase at different prices
Factors Driving Supply
Factors of production play a central role in the overall
supply of goods and services
A change in the cost or availability of any of these inputs
can shift the entire supply curves and services.
Supply Curve
A graph that shows the relationship between different prices
and the amount of goods that sellers will offer for sale,
regardless of demand
How Demand and Supply Interact
Supply and demand curves meet at the equilibrium price.
Buyers and sellers make choices that restore the
equilibrium price.
Changes affect both demand and supply.
Macroeconomics
Issues for the Entire Society Political, social, and legal conditions
differ in every country. Economies generally classified in one of
three categories: Private enterprise system (capitalism or
market economy) Planned economies: socialism, communism Mixed market economies (combinations of the
two)
Capitalism
The Private Enterprise System and CompetitionBusinesses meet needs and demands of consumers and are rewarded through profit.Government favours a hands-off approach.Marketplace competition regulates economic life.Four degrees of competition:
Pure competition Monopolistic competition Oligopoly Monopoly
Types of Competition
Test Your KnowledgeThe market structure that is most likely to be regulated is
a. pure competition.b. monopolistic competition.c. oligopoly.d. monopoly.
Test Your Knowledge
The market structure that is most likely to be regulated is
a. pure competition.b. monopolistic competition.c. oligopoly.d. monopoly.
Answer: D
Planned Economies
Communism An economic system where all property is shared equally by the people in a community under the direction of a strong central government Adopted in early 20th century by many nations, but government-owned monopolies often suffered from inefficiency
Socialism An economic system where the government owns and operates the major industries, such as communications Some private ownership of industry allowed, such as retail and some manufacturing
Planned economy: An economic system where business ownership, profits,
and resource allocation are shaped by a plan to meet government goals
Mixed Market Economies
Mixed market economy: an economic system that draws from both private enterprise economies and planned economies, to different degrees
The mixture of public and private enterprise can vary widely from country to country.
Privatization: The conversion of government-owned and -operated companies to privately-held businesses
Comparison of Alternative Economic Systems
Evaluating Economic Performance
An economic system should provide a stable business environment and sustained growth as benefits for its citizens.Business decisions and consumer behaviour differ at various stages of the business cycle:
Prosperity—Unemployment low, consumer confidence/purchasing high, businesses expanding Recession—A cycle of economic contraction that lasts for six months or longer; consumers careful about purchases, businesses slow production/expansion
Depression—Extended recession Recovery—Declining unemployment, increasing
business activity, renewed consumer confidence
Productivity and the Nation’s Gross Domestic Product Productivity: The relationship between the
number of units produced and the number of human and other production inputs needed to produce them
Gross domestic product (GDP): The sum of all goods and services produced within a country during a specific time period, such as a year
The Canadian GDP is tracked by Statistics Canada
Test Your Knowledge
If labour hours increase, the use of natural resources remains the same, and output remains the same, productivity
a. will increase.b. will remain the same.c. will decrease.d. cannot be determined.
Test Your Knowledge
If labour hours increase, the use of natural resources remains the same, and output remains the same, productivity
a. will increase.b. will remain the same.c. will decrease.d. cannot be determined.
Answer: C
Price-Level Changes Inflation: Rising prices caused by a combination of
excessive consumer demand and higher costs of raw materials, component parts, human resources, and other factors of production
Core inflation rate: The inflation rate after energy prices and food prices are removed
Demand-pull inflation: Excessive consumer demand
Cost-push inflation: Increases in costs of the factors of production
Hyperinflation: An economic situation marked by soaring prices
Inflation devalues money. People can purchase less with what they have (decreased purchasing power).
Deflation: The opposite of inflation, occurs when prices continue to fall
Can cause a weakened economy
Measuring Price-Level Changes Changing prices are tracked by the
Consumer Price Index (CPI). A measurement of the monthly average
change in prices of goods and services Commonly purchased goods and services are
priced to compile the data included in the CPI “market basket”
See the Bank of Canada site for the CPI from 2000 to present.
Contents of the CPI Market Basket
Employment Levels
Unemployment rate: The percentage of total
workforce actively seeking work but currently
unemployed
Four types of unemployment:
Statistics Canada Labour
Force Survey
Managing the Economy’s Performance Monetary policy: A government plan to
increase or decrease the money supply and to change banking requirements and interest rates to affect bankers’ willingness to make loans Expansionary monetary policy: A plan to increase
the money supply to try to decrease the costs of borrowing
Lower interest rates encourage new investments and increases employment and economic growth.
Restrictive monetary policy: A plan to decrease the money supply to control rising prices, overexpansion, and concerns about overly rapid economic growth
The Bank of Canada formulates and implements monetary policy.
Government uses monetary and fiscal policy to fight unemployment,
Fiscal Policy Fiscal policy: A plan of government spending and
taxation decisions designed to control inflation, reduce unemployment, improve the general welfare of citizens, and encourage economic growth
The federal budget is an annual plan for how the government will raise and spend money in the coming year. The primary sources of government funds are taxes, fees, and borrowing.
When the government spends more than the amount of money it raised, there is a budget deficit. When we borrow money to cover the deficit, the national debt is increased.
If the government has more money than it spends, there is a budget surplus.
Global Economic Challenges