5 chap 2 economics
DESCRIPTION
Class discussion.TRANSCRIPT
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Questions about Chapter 1?
Questions about Chapter 2?
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Chapter 2:
Economics
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CHAP 2 ECONOMICS: LEARNING OBJECTIVES…
Explain the economic concepts of supply and demand, business cycles, and the four different degrees of competition.
Contrast capitalism, socialism, communism, and mixed economies.
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Chapter 2 - Economics
Adam Smith Wealth of Nations 1776
•Freedom to own land/property and the right to keep the profits of a business is essential to economic survival.
•People will work hard if they believe they will be rewarded.
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The INVISIBLE HAND THEORY?
• Self-directed gain leads to social and economic benefits for the whole community.
• As people improve their own situation in life, they help the economy prosper through the production of goods,
services and ideas.
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Chapter 2 – Keynesian Economics
Believed if the economy was in a recession…
government should increase spending and cut taxes to stimulate economy.
If inflation…
government should decrease spending
and raise taxes to slow the economy
for a short term. John Maynard Keynes
(1936)
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What kind of economy?
• Most basic businesses owned by government.
• Based on even distribution of wealth.
• Government carries out distribution of wealth.
Socialism
Examples?
France
Denmark
Greece
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What kind of economy?
Communist
Examples?
Cuba
North Korea
Russia
• Government makes economic decisions.
• Government owns major factors of production.
• Significant government in personal choice.
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What kind of economy?
Free market.
Examples?
• Decisions about what and how much to produce made by the market.
• Consumers send signals about what they like and how they like it.
• Price tells companies how much of a product they should produce.
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Types of competition in free market economy…
• Perfect
Examples?
Agricultural products, i.e., corn, beans, fruit
• Many sellers none large enough to dictate price.
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Types of competition in free market economy…
•Monopolistic competition.
Examples?
Soda
Computers
Hot dogs
•Many sellers produce similar products. Buyers perceive products as different.
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Types of competition in free market economy…
•Oligopoly
Examples?
Automobiles
Aircraft
Utilities
•Few sellers who dominate market.
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What kind of economy?
Mixed economy.
Examples?
Germany
Japan
United States
• Some resources allocated by market, some by government.
• Scarcity and excess supply can be caused by government.
• Some restrictions on social freedom.
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Types of economies vs. types of competition?
• Perfect competition
• Monopolistic competition
• Oligopoly
• Socialism
• Communism
• Free market
• Mixed economy
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Capitalism vs. mixed economy?
Figure 2.4, p. 45.
United States
Figure 2.4, p. 45.
Germanyvs.
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Chapter 2 – Foundations of Capitalism?
How does capitalism create wealth?
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Chapter 2 – Foundations of Capitalism?
Right to
Right to
Right to
Right to
Own private property.
Own a business, Keep profits.
Freedom of competition.
Freedom of choice.
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• Economics -- The study of how society employs limited resources to produce goods and services for consumption among various groups and individuals.
• Macroeconomics -- Concentrates on the operation of a nation’s economy as a whole.
(GDP, Unemployment Rate, CPI, PPI)
• Microeconomics -- Concentrates on the behavior of people and organizations in markets for particular products or services.
• (Pricing, Supply/demand)
The MAJOR BRANCHES of ECONOMICS
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2-19
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• Fiscal Policy -- The federal government’s efforts to keep the economy stable by increasing or decreasing taxes or government spending.
• Tools of Fiscal Policy:- Taxation- Government Spending
Examples?
Economic POLICY
2-20
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• Monetary Policy -- The management of the money supply and interest rates by the Federal Reserve Bank (the Fed).
• The Fed’s most visible role is increasing and lowering interest rates.- When the economy is booming, the Fed tends to
increase interest rates.- When the economy is in a recession, the Fed
tends to decrease the interest rates.
Economic POLICY
2-21
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Monetary Policy(Federal Reserve)
• Examples?
Federal Fund Rate
Prime Lending Rate.
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• Supply -- The quantities of products businesses are willing to sell at different prices.
SUPPLY & DEMAND
2-23
• Demand -- The quantities of products consumers are willing to buy at different prices.
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Supply and Demand activity
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• Supply -- The quantities of products businesses are willing to sell at different prices.
SUPPLY CURVES
2-25
Has to do with producers.
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• Demand -- The quantities of products consumers are willing to buy at different prices.
DEMAND CURVES
2-26
Has to do with buyers.
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• Market Price (Equilibrium Point) -- Determined by supply and demand, this is the negotiated price.
EQUILIBRIUM
2-27
Producers.Buyers.
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Market (Product/Service) Price
• Is the price for a Product/Service always in equilibrium?
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• Business Cycles -- Periodic rises and falls that occur in economies over time.
• Four Phases of Long-Term Business Cycles:1. Economic Boom
2. Recession – Two or more consecutive quarters of decline in the GDP.
3. Depression – A severe recession.
4. Recovery – When the economy stabilizes and starts to grow. This leads to an Economic Boom.
BUSINESS CYCLES
2-29
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Typical Business Cycle…
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WHAT IS…
GDP?
Monetary value of all finished goods and services produced in a country in a specific time period.
Gross Domestic Product•Measure of productivity.
•High GDP enables us to enjoy a high standard of living.
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WHAT IS…
CPI?
Consumer Price Index
•Costs of goods and services (housing, food, apparel, medical care).
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WHAT IS…
Consumer Price Index
Why is the CPI important?
•Indication of inflation/deflation.
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