Economics and its influence on the business environment
What is Economics?ECONOMICS is the study of how society chooses to1. employ resources to produce goods and services and2. distribute them for consumption among various competing groups and individuals. 2
Influence of the Free Market System In a free-market system, decisions about what to produce and in what quantities are made by THE MARKET. So, who is THE MARKET….? 3
The Market Buyers (or consumers) who determine demand Sellers (or producers) who determine supply 4
How the Market Works CONSUMERS send signals to PRODUCERS about what to make, how many, and so on through the mechanism of PRICE. PRICE tells producers how much to produce, reducing the chances of a long-term shortage of goods. 5
How is Price Determined?? Prices in a free market are not determined by sellers; rather multiple buyers and sellers negotiating in the marketplace determine them. Price is determined through the economic concepts of supply and demand. 6
Let’s look at an example…It’s a hot summer day. Catherine sees an ice cream conestand on the corner… How might your demand for icecream cones change as the price changes? 7
The Relationship between Price and Quantity DemandedThe o Demand Schedule The demand schedule is a table that shows the relationship between the price of the good and the quantity demanded. o Demand Curve The demand curve graphs the relationship between the price of a good and the quantity demanded. 10
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