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Economy and Costs


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Economy and Costs

  1. 1. Economy and Costs Unit 2
  2. 2. Economics <ul><li>How does working in a market economy affect the way that entrepreneurs run their business? </li></ul><ul><li>How does working in a command economy affect the way that entrepreneurs run their business? </li></ul><ul><li>Compare and contrast the role of government in a command and market economy and the affects on business owners. </li></ul><ul><li>How does supply and demand affect an entrepreneur’s product decision as well as the cost of their business? </li></ul>
  3. 3. Economies <ul><li>The management of resources of a community or country with a view to its productivity. </li></ul><ul><li>All economies produce good and services. </li></ul>
  4. 4. Market Economy <ul><li>Individuals decide what, how, and for whom goods and services are produced. </li></ul><ul><li>Decisions about production and consumption are made by millions, each acting alone. </li></ul>
  5. 5. Command Economy <ul><li>The government determines what, how, and for whom products and services are produced. </li></ul><ul><li>The government is making the decisions, little choice is available for consumers. </li></ul>
  6. 6. Resources <ul><li>Scarcity </li></ul><ul><ul><li>When people’s needs and wants are unlimited and the resources to produce the goods and services to meet those needs and wants are limited. </li></ul></ul><ul><ul><li>Occurs in every economy. </li></ul></ul><ul><li>Productivity </li></ul><ul><ul><li>The level of output that an industry or company gets from each worker or each unit of input into its products and services. </li></ul></ul>
  7. 7. Supply <ul><li>Supply </li></ul><ul><ul><li>How much of a good and service a producer is willing to produce at different prices. </li></ul></ul><ul><ul><li>Suppliers are willing to supply more of a product or service at a higher price. </li></ul></ul>
  8. 8. Demand <ul><li>An individual’s need or desire for a product or service at a given price. </li></ul><ul><li>Individuals are willing to consume more of a product or service at a lower price. </li></ul>
  9. 9. Equilibrium Point <ul><li>The point at which the supply and demand curves. </li></ul><ul><li>This is the price at which supply equals demand. </li></ul>
  10. 10. Price Quantity Supply and Demand Curves $50 40 30 20 10 10 20 30 40 50 Equilibrium Price
  11. 11. Market Structure <ul><li>Monopoly </li></ul><ul><ul><li>When a company controls all of a market. </li></ul></ul>
  12. 12. Functions of Business <ul><li>Production </li></ul><ul><ul><li>Creates or obtains products or services for sale. </li></ul></ul><ul><li>Marketing </li></ul><ul><ul><li>Marketing Mix </li></ul></ul><ul><li>Management </li></ul><ul><ul><li>Setting goals, determining how goals can be met, and how to respond to the actions of competitors </li></ul></ul><ul><li>Finance </li></ul><ul><ul><li>Plans and manages financial records and information related to businesses’ finances. </li></ul></ul><ul><li>All functions are dependent on the others in order for the business to be effective. </li></ul>
  13. 13. Marketing <ul><li>Product </li></ul><ul><li>Price </li></ul><ul><li>Place </li></ul><ul><li>Promotion </li></ul><ul><li>All businesses in a market economy need to complete marketing activities in order to make their products and services available to consumers. </li></ul>
  14. 14. Government Involvement <ul><li>Purchases </li></ul><ul><ul><li>Government purchases huge amounts of goods and services. </li></ul></ul><ul><li>Taxes </li></ul><ul><ul><li>Government taxes certain goods and services. </li></ul></ul><ul><li>Subsidies </li></ul><ul><ul><li>Government provides payments to produces of certain types of products. </li></ul></ul>
  15. 15. Government’s Role <ul><li>Regulator </li></ul><ul><ul><li>Inspections </li></ul></ul><ul><ul><ul><li>Provides inspection of certain goods and services to ensure conditions are safe for employees and consumers. </li></ul></ul></ul><ul><ul><li>Licenses </li></ul></ul><ul><ul><ul><li>Government requires some businesses to hold licenses. </li></ul></ul></ul>
  16. 16. Government as a Provider <ul><li>Public Goods </li></ul><ul><ul><li>A good from which everyone receives benefits, not just the individual consuming the good. </li></ul></ul><ul><li>Social Programs </li></ul><ul><li>Redistributor of Income </li></ul>
  17. 17. Cost <ul><li>Compare and contrast fixed and variable costs and explain how this affects the finances of a business. </li></ul><ul><li>How does opportunity cost affect the decision making process for entrepreneurs? </li></ul><ul><li>Compare and contrast the benefits of marginal cost and marginal benefit and its affects on the decision making process. </li></ul>
  18. 18. Costs <ul><li>Fixed Costs: </li></ul><ul><ul><li>Costs that must be paid regardless of how much of a good or service is produced. </li></ul></ul><ul><ul><li>Also known as Sunk Costs. </li></ul></ul><ul><li>Variable Costs: </li></ul><ul><ul><li>Costs that go up and down depending on the quantity of the good or service produced. </li></ul></ul>
  19. 19. Other Costs <ul><li>Marginal Benefit: </li></ul><ul><ul><li>Measures the advantage of producing on additional unit of a good or service. </li></ul></ul><ul><li>Marginal Cost: </li></ul><ul><ul><li>Measures the disadvantages of producing one additional unit of a good or service. </li></ul></ul><ul><li>Opportunity Cost: </li></ul><ul><ul><li>The cost of choose one opportunity or investment over another. </li></ul></ul>