Different types of economic systems
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Different types of economic systems

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Different types of economic systems Presentation Transcript

  • 1. Chapter 1 Understanding the U.S. Business System
  • 2. Outline
    • The Concept of Business and the Concept of Profit
    • Economic Systems Around the World
    • The U.S. Economic System
    • Evaluating Economic Systems
  • 3. The Concept of Business and the Concept of Profit
    • Business
      • An organization that provides goods or services to earn profits
    • Profits
      • The difference between a business’s revenues and its expenses
  • 4. Economic Systems Around the World
    • Economic System
      • A nation’s system for allocating its resources among its citizens
  • 5. Factors of Production
    • Resources used in the production of goods and services
    • Four traditional factors of production:
    • Natural Resources
    • Labor
    • Capital
    • Entrepreneurs
    • Newer perspectives include:
    • Physical Resources
    • Information Resources
  • 6. Factors of Production
    • Natural Resources
      • Materials supplied by nature (such as land, water, mineral deposits, and trees)
    • Labor (or Human Resources)
      • Physical and mental capabilities of people as they contribute to economic production
    • Capital
      • Funds needed to create and operate a business enterprise
  • 7. Factors of Production
    • Entrepreneur
      • Person who starts a new business or makes the decisions that expand a small business.
    • Physical Resources  
      • Tangible things organizations use in the conduct of their business.
    • Information Resources
      • Data and other information used by a business.
  • 8. Types of Economic Systems
    • Planned Economy
      • Centralized government controls all or most factors of production and makes all or most production and allocation decisions
    • Market Economy
      • Individuals control production and allocation decisions through supply and demand
  • 9. Planned Economies
    • Communism
      • Planned economic system in which the government owns and operates all major sources of production
    • Socialism
      • Planned economic system in which the government owns and operates selected major sources of production
  • 10. Market Economies
    • Market 
      • Mechanism for exchange between buyers and sellers of a particular good or service
    • Input Market  
      • Firms buy resources from supplier households
    • Output Market  
      • Firms supply goods and services in response to demand on the part of households
    • Capitalism
      • Market economy that provides for private ownership of production and encourages entrepreneurship by offering profits as an incentive
  • 11. “ Pure Market Economy” 1- OUTPUT MARKETS Goods Services INPUT MARKETS Labor Capital Entrepreneurs Physical Resources Information Resources HOUSEHOLDS
    • Demand products in output markets
    • Supply resources in input markets
    FIRMS
    • Supply products in output markets
    • Demand resources in input markets
    DEMAND DEMAND SUPPLY SUPPLY
  • 12. Mixed Market Economies
    • Privatization
      • Process of converting government enterprises into privately owned companies
    • Socialism
      • Planned economic system in which the government owns and operates only selected major sources of production
    Economic system featuring characteristics of both planned and market economies
  • 13. The U.S. Economic System
    • Understanding the complex nature of the U.S. economic system is essential to understanding the environment in which U.S. businesses operate.
  • 14. Markets, Demand, & Supply
    • Demand
      • The willingness and ability of buyers to purchase a good or service
    • Supply
      • The willingness and ability of producers to offer a good or service for sale
  • 15. The Laws of Demand & Supply
    • Law of Demand
      • Principle that buyers will purchase (demand) more of a product as its price drops and less as its price increases
      • Law of Supply
      • Principle that producers will offer (supply) more of a product for sale as its price rises and less as its price drops
  • 16. The Laws of Demand & Supply
    • Demand and Supply Schedule
      • Assessment of the relationships between different levels of demand and supply at different price levels
    • Demand Curve
      • Graph showing how many units of a product will be demanded (bought) at different prices
    • Supply Curve
      • Graph showing how many units of a product will be supplied (offered for sale) at different prices
  • 17. The Laws of Demand & Supply
    • Market Price (or Equilibrium Price)
      • Profit-maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal
    • Surplus
      • Situation in which quantity supplied exceeds quantity demanded
    • Shortage
      • Situation in which quantity demanded exceeds quantity supplied
  • 18. Demand & Supply 1- 1- Demand and Supply Schedules Quantity of Quantity of Price Pizzas Demanded Pizzas Supplied $2 2000 100 $4 1900 400 $6 1600 600 $8 1200 800 $10 1000 1000 $12 800 1200 $14 600 1300 $16 400 1600 $18 200 1800 $20 100 2000
  • 19. Demand & Supply Quantity of Pizzas Demanded Price of Pizzas Demand Curve   1- 1- 200 - 400 - 600 - 800 - 1000 - 1200 - 1400 - 1600 - 1800 - 2000 - $20 - 18 - 16 - 14 - 12 - 10 - 8 - 6 - 4 - 2 -
  • 20. Demand & Supply Quantity of Pizzas Supplied Supply Curve   1- 1- 200 - 400 - 600 - 800 - 1000 - 1200 - 1400 - 1600 - 1800 - 2000 - $20 - 18 - 16 - 14 - 12 - 10 - 8 - 6 - 4 - 2 - Price of Pizzas
  • 21. Demand & Supply Quantity of Pizzas per Week Demand Curve Supply Curve Equilibrium Price  1- 1- 200 - 400 - 600 - 800 - 1000 - 1200 - 1400 - 1600 - 1800 - 2000 - $20 - 18 - 16 - 14 - 12 - 10 - 8 - 6 - 4 - 2 - Price of Pizzas
  • 22. Private Enterprise Economic system that allows individuals to pursue their own interests without undue governmental restriction
    • Four elements of private enterprise:
    • Private Property Rights
    • Freedom of Choice
    • Profits
    • Competition
  • 23. Private Enterprise
    • Private Property Rights
      • The right to buy, own, use, and sell almost any form of property
    • Freedom of Choice
      • The right to sell your labor to the employer you choose, purchase products you want to buy, choose what to produce or who to hire, etc.
    • Profits
      • Anticipated profits play a large part in individuals’ choices of what goods or services to produce
    • Competition
      • Vying among businesses for the same resources or customers
  • 24. Degrees of Competition
    • Pure Competition
      • Market or industry characterized by numerous small firms producing an identical product
    • Monopolistic Competition
      • Market or industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those of competitors
    • Oligopoly 
      • Market or industry characterized by a handful of (generally large) sellers with the power to influence the prices of their products
  • 25. Degrees of Competition
    • Monopoly
      • Market or industry in which there is only one producer, which can therefore set the prices of its products
    • Natural Monopoly
      • Industry in which one company can most efficiently supply all needed goods or services
  • 26. Evaluating Economic Systems
    • Nearly every economic system has three broad goals:
      • Stability
      • Full Employment
      • Growth
  • 27. Economic Goals
    • Stability
      • Condition in which the balance between the money available in an economy and the goods produced in it are growing at about the same rate.
    • Inflation
      • Phenomenon of widespread price increases throughout an economic system.
    • Recession
      • Period characterized by decreases in employment, income, and production.
    • Depression
      • Particularly severe and long-lasting recession.
  • 28. Economic Goals
    • Full Employment
      • Everyone who wants to work has an opportunity to do so
    • Unemployment
      • Level of joblessness among people actively seeking work
    • Knowledge Workers
      • Skilled employees in high-tech industries
    • Growth
      • Increase in the amount of goods and services produced by a nation’s resources
  • 29. Assessing Economic Performance
    • Gross National Product (GNP)
      • The value of all goods and services produced by an economic system in a year regardless of where the factors of production are located
    • Real Gross National Product (real GNP)
      • Gross national product adjusted for inflation and changes in the value of a country’s currency
    • Gross Domestic Product (GDP)
      • The value of all goods and services produced in a year by a nation’s economy through domestic factors of production
  • 30. Assessing Economic Performance
    • Productivity
      • Measure of economic growth that compares how much a system produces with the resources needed to produce it
    • Balance of Trade
      • The difference between a country’s exports to and imports from other counties
    • Budget Deficit
      • Situation in which a government body spends more money than it takes in
    • National Debt
      • Total amount that a nation owes its creditors
  • 31. Managing the U.S. Economy
    • Fiscal Policies
      • Government economic policies that determine how the government collects and spends its revenues
    • Monetary Policies
      • Government economic policies that determine the size of a nation’s money supply
  • 32. The Global Economy in the 21st Century
    • The United States was riding the crest of a long-term economic boom. Growth has been strong, and unemployment and inflation remain low. Now are we in a recession?
    What forces will drive the economy for the next decade?
  • 33. Three Major Forces
    • The information revolution will continue to enhance productivity across all sectors of the economy, but most notably in such information-dependent industries as finance, media, and wholesale and retail trade.
    • New technological breakthroughs in such areas as biotechnology will create entirely new industries.
    • Increasing globalization will create much larger markets while also fostering tougher competition among global businesses; as a result, companies will need to focus even more on innovation and cost cutting.
  • 34. Projected Trends & Patterns
    • The economy will maintain strong and consistent growth rates, perhaps exceeding 3 percent per year. New technological breakthroughs in such areas as biotechnology will create entirely new industries.
    • Inflationary surges and large budget deficits will become less likely.
    • Countries that encourage free trade, innovation, and open financial systems will prosper.
    • The most successful businesses will be those that are able most effectively to master new technologies and keep abreast of their competitors.