Economics

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ENVIRONMENT – SETTING
THE SCENE
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
THE ECONOMIC & BUSINESS
PART 1

2. 2 of 38 Slide 2
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Chapter 1
1 WHAT IS BUSINESS ECONOMICS?
ECONOMICS & BUSINESS
DECISION MAKING
2

3. 3 of 38
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 3
Chapter 1
Economic Analysis
Economics is a study about how individuals,
businesses and governments make choices on
allocating resources to satisfy their needs.
-These groups determine how the resources are
organized and coordinated to achieve maximum
output. They are mostly concerned with the
production, distribution and consumption of goods
and services.

4. 4 of 38
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 4
Chapter 1
- Economics is divided into two important
sections, which are: Microeconomics &
Macroeconomics.
- Microeconomics focuses on individual
consumers and businesses. It deals with various
issues like demand, supply, factor pricing,
product pricing, economic welfare, production,
consumption, and more.
- Macroeconomics deals with the behavior of the
aggregate economy. The most important factors
studied in macroeconomics involve gross
domestic product (GDP), unemployment,
inflation and growth rate etc.

5. 5 of 38
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 5
Chapter 1
What is Economics?
Economics is the study of how society manages
its scarce resources.
Scarcity is the limited nature of society’s
resources.
Businesses allocate scarce resources among
competing uses, considering a range of
stakeholder wants and needs.
Governments get involved and most economies
are a mix of private and public ownership.

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For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 6
Chapter 1
The Economic Problem
There is a gap between the scarce (limited)
available resources and the unlimited needs
and wants.
 Scarce resources: Scarce because supply of them
is limited in relation to demand.
 Wants: Things people would like to have but are not
essential for life.
 Needs: The essentials of life.

7. 7 of 38
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 7
Chapter 2
 Competing choices: Limited incomes mean
all wants and needs cannot be satisfied.
Continue the Economic
Problem
Choices have to be made which involve
costs and benefits

8. 8 of 38
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 8
Chapter 1
 Getting the most from scarce resources means
facing different trade-offs such as:
• How to use your time.
• To decide as a business whether to employ more
people or more machines.
• As a country whether to have more capital or
more consumer goods.
• Whether to have more goods or a cleaner
environment.
Decision making involves trade-offs.

9. 9 of 38
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 9
Chapter 1
 The opportunity cost is whatever is given up to
obtain some item.
 It measures the value of what is foregone.
 The second-best alternative.
The cost of something is what you give up to get it.

10. 10 of 38
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 10
Chapter 2
 Individuals make many decisions every day on
purchases.
 The combined decisions of these individuals send
messages to businesses that will affect business
behaviour.
The Effect of Human Decision
Making on Business

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For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 11
Chapter 1
The Fundamental Questions of Society
What should be produced?
How will products be produced?
Who (for whom) will get the products?
Capitalist and communist economies have
different ways of deciding these questions.

12. 12 of 38
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 12
Chapter 1
Types of Economic Systems
 Communist economies: Systems where
resource inputs are largely owned by the state
and exchange and trade are based on social,
political and economic motives.
 Capitalist economies: Systems where resource
inputs are largely owned by private individuals
and where the motive for exchange takes place
primarily for profit.
 Mixed Economies :economic systems that include
elements of both private and public ownership of
resources to answer the fundamental questions.

13. 13 of 38
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 13
Chapter 1
1. What is Business Economics?

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For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 14
Chapter 1
What is Business Economics?
Business activity is the turning of land, labour
and capital into a product or service sold to
customers. It is carried out by organizations that
set themselves clear aims. For a private
organization, a main aim is to make a profit.

15. 15 of 38
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 15
Chapter 1
Classifying Business…
Through an organization’s ownership and its
primary aim:
• Private sector business: Maximum Profit.
• Public sector organization: Perhaps to maximize
opportunities to access products and services like
roads, education and health care.
• Third sector organization: To meet the needs of
its beneficiaries.

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For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 16
Chapter 1
Business Decision Making
 Businesses make every day running decisions
and longer-term decisions to improve efficiency.
 Everyday decisions might include ordering stock
and contacting customers for payment.
Longer term decisions involve how to add value to
their products or services by recruitment and
investment. They will keep track of competitors.
As well as expansion decisions, they need to know
when it is best to contract and even close.

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For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 17
Chapter 2
 Investment is making money available to
develop a project which will generate future
returns.
 Investment has both costs and benefits to
business.
• Some costs and benefits are internal to the
business.
• Some costs and benefits affect stakeholders who
are external to the business.
Investment

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For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 18
Chapter 2
 Investment decisions:
• Plant, equipment, buildings, land – with a view to future
returns.
 Business consumption decisions:
• Human resources, raw materials, supplier choice –
operating inputs.
 Risk factor – any business decision involves risk.
 Growth can be internal from new investment, and/or
external from mergers and takeovers.
 Synergy is where the whole is greater than the sum of
the parts.
Growth and Expansion

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For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 19
Chapter 2
 Sales revenue comes from
attracting new customers or
having repeat customers
come back.
 Persuading customers to buy
the business’ product in the
first place involves costs such
as:
• Marketing
• Advertising
• Promotion
• Service
• Quality
 Once acquired, customers
have to be persuaded to
return but this also comes as
a cost, e.g. providing good
customer care.
 The cost of acquiring
customers is much higher
than keeping them.
 Businesses have to make
decisions on the cost benefit
of acquiring and keeping
customers.
Acquiring and Keeping Customers

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For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 20
Chapter 1
 People compare the costs and benefits when
making decisions.
• If the price of a good rises, consumers buy less of that
good and buy more of alternative goods.
 Decisions are made by:
• People as consumers
• Businesses as suppliers
• Governments as policymakers
 There can be unintended consequences from
decisions.
People and businesses respond to incentives.

21. 21 of 38
For use with Business Economics 3e
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
ISBN: 978-1-4737-6277-0
© Cengage Learning
Slide 21
Chapter 1
End of Chapter 1 and 2