Economics and its influence on the business environment

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Economics and its influence on the business environment

  1. 1. 1
  2. 2. 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
  3. 3. 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
  4. 4. The Market Buyers (or consumers) who determine demand Sellers (or producers) who determine supply 4
  5. 5. 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
  6. 6. 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
  7. 7. Let’s look at an example…It’s a hot summer day. Catherine sees an ice cream shopon the corner. How might your demand for ice creamcones change as the price changes? 7
  8. 8. Catherine’s Demand Schedule http://jimdzialo.wikispaces.com/Unit+2+Supply+and+Demand 8
  9. 9. Figure 1 Catherine’s Demand Schedule and Demand Curve Price of Ice-Cream Cone $3.00 2.50 1. A decrease 2.00 in price ... 1.50 1.00 0.50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones 2. ... increases quantity of cones demanded.http://jimdzialo.wikispaces.com/Unit+2+Supply+and+Demand 9 Copyright © 2004 South-Western
  10. 10. 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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