LO 2 1 Explain basic economics How Economic Conditions Affect Businesses Economic Effects climate success U S Business success in U S is due partly to our free economic and social Changes in U S economic or political systems influence business Global economics and global politics also influence businesses in the What Is Economics Economics 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 Macroeconomics The part of economics study that looks at the operation of a nation s economy as a whole people and organizations in particular markets Microeconomics The part of economics study that looks at the behavior of create conditions that will make better use of those resources Resource development The study of how to increase resources and to Examples of ways to increase resources New energy sources New ways of growing foods New ways of creating goods and services Nanotechnology 3D printing 4D technology The Secret to Creating a Wealthy Economy The dismal science wealth and the poor had most of the population resources would run out Thomas Malthus believed that if the rich had most of the Latest world statistics show population growing more slowly than expected Contrary to Malthus some macroeconomists believe a large population can be a resource An educated population is highly valuable Business owners provide jobs and economic growth for their employees and communities as well as for themselves Adam Smith and the Creation of Wealth Smith believed that Freedom was vital to any economy s survival Freedom to own land or property and the right to keep the profits of a People will work hard if they believe they will be rewarded How Businesses Benefit the Community Invisible hand The process that turns self directed gain into social and through the production of goods services and ideas and charitable donations As people improve their own situation in life they help the economy prosper However poverty rate in U S remains high business is essential economic benefits for all Test Prep What is the difference between macroeconomics and microeconomics What is better for an economy than teaching a man to fish What does Adam Smith s term invisible hand mean How does the invisible hand create wealth for a country economy as a whole Microeconomics looks at the behavior of people and organizations in markets for particular products or services 1 Macroeconomics looks at the operations of a nation s to start a fish farm whereby he will be able to feed a village for a lifetime 2 To create wealth in an economy it is better to teach a man 3 The invisible hand is the term used by Adam Smith to describe the processes that turn self directed gains into social and economic benefits for all To become wealthy people working in their own self interest producing goods and services expand by hiring others to provide employment and increases the well being of others They also tend to reach out to help the less fortunate over time LO 2 2 Explain what capitalism is and how free markets work Understanding Free Market Capitalism Capitalism factors of production and distribution are privately owned and operated for profit An economic system in which all or most of the U S England Australia Canada State capitalism A combination of freer markets China has experienced rapid growth using state Four Basic Rights a The right to own private property b The right to own a business and keep all that business s and some government control capitalism profits c The right to freedom of competition d The right to freedom of choice Roosevelt s Four Additional Freedoms a Freedom of speech and expression b Freedom to worship in your own way c Freedom from want d Freedom from fear How Free Markets Work made by the market Free market Decisions about what and how much to produce are Consumers send signals about what they like and how they like it Price tells companies how much of a product they should produce If something is wanted but hard to get the price will rise until more products are available How Prices Are Determined may buy at that price increase By buyers and sellers negotiating in the marketplace A seller may want to sell shirts for 50 but only a few people If the seller lowers the price quantity demanded likely to The Economic Concepts of Supply Demand and Equilibrium Point to sell at different prices at a specific time Supply The quantity of products that manufacturers or owners are willing Demand The quantity of products that people are willing to buy at different prices at a specific time demand Market price equilibrium point The price determined by supply and Figure 2 1 The Supply Curve at Various Prices through The higher the price of T shirts goes the vertical axis the more sellers will be willing to supply The supply curve rises from left to right Think it The Supply Curve at Various Prices Text Alternative quantity supplied An upward curving line labeled supply curve indicates that as the price of T shirts rises the quantity also rises The graph shows the relationship between the price of T shirts and the Figure 2 2 The Demand Curve at Various Prices Figure 2 2 The Demand Curve at Various Prices Text Alternative The graph shows the relationship between the price of T shirts and the quantity demanded A downward curving line on the chart labeled demand curve indicates that as the price of T shirts decreases the quantity demanded increases This is a simple demand curve showing the quantity of T shirts demanded at different prices The demand curve falls from left to right It is easy to understand why The lower the price of T shirts the higher the quantity demanded Figure 2 3 The Equilibrium Point Figure 2 3 The Equilibrium Point Text Alternative of T shirts A downward sloping demand curve and an upward sloping supply curve are shown The The graph shows the relationship between the price of T shirts and the quantity point at which these two curves intersect is labeled as the equilibrium point Here it shown at a price of 15 dollars and a quantity of 25 The place where quantity demanded and quantity supplied meet is called the equilibrium point When we put both the supply and demand curves on the same graph we find that they intersect at a price where the quantity supplied and the quantity demanded are equal In the long run the market price will tend toward the equilibrium point Competition within Free Markets