1. Economics: Create Wealth
• Study of how society chooses to
employ resources to produce
goods & services and distribute
them among competing
groups/individuals
• Micro v. Macro
• Resource Development
2. Four “What’s” of
an Economic System
$ What is produced?
$ What amount is produced?
$ What is the method of output
distribution?
$ What is the rate of economic growth?
Adapted from:Adapted from: Edwin Mansfield Economics (New York: W.W. Norton, 1976), p.8
3. Chapter 1
What is Business?
Supply and Demand
• The forces of supply and demand determine a
product’s market price
• In turn, supply and demand are the result of
peoples’ subjective judgment of the value or
utility they will receive from supplying or
consuming a particular product
4. Chapter 1
What is Business?
Law of Supply
• Sellers are more willing to supply a product as
the price increases and less willing to supply as
the price decreases
6. Chapter 1
What is Business?
Law of Demand
• Reflects the usefulness or utility from that
product
• Given the price of a product or service, we
generally demand less quantity of it as the price
increases and demand more of it as the prices
decreases
See Learning Goal 1: Compare and Contrast the economics of despair with the economics of growth.
See text pages: 30-34
See Learning Goal 1: Compare and Contrast the economics of despair with the economics of growth.
Four “What’s” of an Economic System:
These four questions are used in evaluating an economic system. Globalization has made these questions more important than ever as we trade with different global economies.
How is the Peoples’ Republic of China, different than the United States economically?
How would they address these questions?
In a country like Russia decisions made concerning what is produced were made by the government. Who decides what is produced in the U.S.? (Consumers decide what is produced by their purchasing habits.)
See Learning Goal 2: Explain what capitalism is and how free markets work.
See text pages: 34-40
Supply Curve
Economics is the concept of supply and demand. This acetate illustrates the relationship between supply and demand.
Supply curves slope upward to the right as demand increases. Note as demand for a product increases; it forces suppliers to increase their production to meet the demand; the result is a higher quantity of product sold at higher prices.
The interaction of supply and demand plays a major role on prices. When gasoline is in short supply… prices rise; more countries will increase their production to meet this demand.
See Learning Goal 2: Explain what capitalism is and how free markets work.
See text pages: 34-40
Demand Curve
This slide complements the previous slide dealing with the economic concept of supply.
Compare this slide to the examples in the text. Why does the demand curve shift downward to the right? (When demand is high and supply is short, prices will rise; as companies expand to meet the demand, more supply is available resulting in lower prices.)
Movements along the demand curve will not improve companies profit outlook. Ideally a company wants to shift their entire demand curve upwards to the right. If a company is successful shifting the demand curve upwards to the right, it will mean increased quantity sold at higher prices; resulting in larger profits.
See Learning Goal 2: Explain what capitalism is and how free markets work.
See text pages: 34-40
Equilibrium Point
This slide combines the information from the previous two slides to create the concept of market pricing or equilibrium. The intersection of the product quantity demanded and supplied is the equilibrium point. Historically, market prices tend to gravitate toward the intersection of product quantity demanded and product quantity supplied.
If market forces determine prices, why do we need government involvement in pricing in certain industries? (If a company has an unfair advantage, or becomes too large, they can control price without regard to market conditions and customers will be forced to pay more.)
Ask the student how a business can charge a higher price than the equilibrium point? (Through product differentiation, (real or perceived) a company can create a demand for their product resulting in higher pricing.)
