Chapter 2 I How economic conditions affect business Business success is due to an economic and social climate that allows most business to operate freely II What is economics A The study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals a Microeconomics operation of nation s economy as a whole a i Why do people buy smaller cars when gas prices go up b Macroeconomics the behavior of people and organizations in markets for particular products or services i Unemployment rate price index GDP III Resource development is the study of how to increase resources and create conditions that will make better use of them recycle A New energy sources B New ways of developing food C The secret to creating a wealthy economy a Studies about the effects of population on the economy are part of macroeconomics IV Business owners provide jobs and economic growth for their employees and communities as well as for themselves V Large population valuable resource VI Job of macroeconomists is to determine what makes some countries rich and some poor and then implement policies to increase prosperity Adam Smith and the creation of wealth VII VIII Envisioned creating more resources so that everyone could become wealthier IX Freedom is vital to economy X People will work long and hard with incentives XI Father of modern economics XII How businesses benefit the community a People work primarily for their own good but in everyone working together their efforts become and invisible hand which turns self gain into social and economic benefits for all XIII Understand free market capitalism A Under capitalism all or most factors that production and distrubution are owned by individuals a Land factories railroads and stores i Owned by business people who choose what to produce how much and what to charge not government a No country is fully capitalist because gov intervenes with wages XIV Foundations of Capitalism and taxes a Under these people are more inclined to take risks B Right to own private property buy and sell all forms of property and pass it onto their children a Would farmers work hard if they didn t own the land and couldn t keep the profits C Right to own a business and keep profits profit acts as incentives to owners D Right to freedom of competition compete with other individuals in selling goods and services within government guidelines E Right to freedom of choice choose where they want to work and what career to follow How Free Markets Work XV A Free market is one in which decisions about what and how much to produce and made by the market by buyers and sellers negotiating prices for goods and services a If there is a demand for a certain type of shirt clothing producers would respond and then raise the price on that shirt because they know people are willing to pay for a shirt they want i They will also have an incentive to pay workers to start earlier in order to make more shirts b Price goes up when something that is wanted isn t unavailable until someone begins making it so that there is never a long term shortage of a certain good XVI How prices are determined A Prices are determined by buyers and sellers negotiating in the market place a If a shirt is 50 the quantity of buyers demand at the price might be low so the seller would lower the price to increase the quantity of buyers XVII Economic concept of supply A Supply refers to the quantities of products manufacturers or owners are willing to sell at different prices at a specific time a The amount supplied will increase as price increases because sellers can make more money with a higher price XVIII Economic concept of demand A Demand refers to the quantity of products that people are willing to buy at different prices at a specific time a Quantity demanded increases as price decreases Equilibrium point price point XIX A The key factor in determining quantities supplied and demanded is price B When shirts demanded and quantity supplied are equal they are at the price point Benefits of Socialism XX A Major benefit of socialism is social equality because gov takes income from wealthier people and redistributes it a Free education free healthcare child care etc XXI Negative consequences of socialism A Many wealthier businessmen like doctors and lawyers leave socialist countries to come to capitalist ones because there are lower taxes Brain drain loss of best and brightest people to other countries a Causes workers not to want to work as hard b Less inventions c Less innovation XXII Trend toward mixed economies A Free market market largely determines what goods and services are produced who gets them and how the economy grows aka capitalism B Command government decides the above socialism C Mixed some allocation is made by market and some by government
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