Chapter 3 1 Economic Environment of Business Chapter

Economics — body of knowledge that relates to producing and using goods and services that satisfy human wants Economic wants — desire for scarce material goods and services Noneconomic wants — desire for nonmaterial things that are not scarce, such as air, sunshine, and friendship 2 Chapter 3 Economic Environment of Business

Economic Wants l Satisfying our economic wants – – l Capital formation – – 3 Utility — form, place, time, possession Factors of production — natural resources, labor, capital goods, entrepreneurship Capital goods — goods needed to produce consumer goods and services Consumer goods and services — goods and services that directly satisfy people’s economic wants Chapter 3 Economic Environment of Business

Economic Systems Economic system — organized way for a country to decide how to use its productive resources; that is, to decide what, how, and for whom goods and services will be produced 4 Chapter 3 Economic Environment of Business

Types of Economic Systems l l l 5 Market economy — individual buying decisions in the marketplace determine what, how, and for whom goods and services will be produced Command economy — central planning authority, under control of government, owns most of the factors of production and determines what, how, and for whom goods and services will be produced Mixed economy — aspects of a market and a command economy are used to make decisions about what, how, and for whom goods and services will be produced Chapter 3 Economic Environment of Business

Types of Economic-Political Systems l l l 6 Capitalism — private citizens are free to go into business for themselves, produce whatever they choose, and distribute what they produce Socialism — government controls the use of the country’s factors of production Communism — all or almost all of a nation’s factors of production are owned by the government Chapter 3 Economic Environment of Business

Fundamentals of Capitalism l Private property – l Price setting – – l l 7 Profit Demand Supply Competition Income distribution Chapter 3 Economic Environment of Business

SUPPLY AND DEMAND 8 Chapter 3 Economic Environment of Business

Lesson 3. 4 Managing the Economy Goals l Explain how economic growth can be promoted and measured. l List basic economic problems that exist and state what government can do to correct the problems. 9 Chapter 3 Economic Environment of Business

Managing the Economy l Measuring economic growth – – – 10 Gross domestic product (GDP) Consumer Price Index (CPI) Index of leading economic indicators Employment Retail sales Personal income and consumption Chapter 3 Economic Environment of Business

Managing the Economy l Identifying economic problems – – l Correcting economic problems – – 11 Recession Inflation Business cycles: expansion, peak, contraction, trough Depression Chapter 3 Economic Environment of Business