Download economic systems

ECONOMICSYSTEMS
A86012ManagementandPrinciplesof
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Economic Foundations of Business
Economics
•  The study of how
resources are distributed
for the production of goods
and services within a social
system
Source:MBusiness5thEdi:on
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A86012ManagementandPrinciplesof
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Source:KeithCoates,TomorrowTodayInterna:onalPartner
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Economic Foundations of Business
• 
• 
• 
• 
Natural Resources
Land, forests, mineral, water, and other things not made by
people
Human Resources – also called Labor
The physical and mental abilities people use to produce
goods and services
Financial Resources – also called Capital
The funds used to acquire the natural and human
resources needed to provide products
Intangible Resources
Such as a good reputation for quality products or being
socially responsible
Source:MBusiness5thEdi:on
Economic Systems
Economic System
•  A description of how a particular society distributes
its resources to produce goods and services
All economic systems must address these 3 important issues:
1.  What goods and services, and how much of each, will
satisfy consumers’ needs?
2.  How will goods and services be produced, who will
produce them, and with what resources will they be
produced?
3.  How are the goods and services to be distributed to
consumers?
Source:MBusiness5thEdi:on
EconomicSystems
Source:South-Western,apartofCengageLearning
A86012ManagementandPrinciplesof
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Source:Vpuller.blogspot.it
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Economic Systems
•  First described by Karl Marx as a society in which
the people, without regard to class, own all the
nation’s resources
•  On paper it appears efficient, but in practice, these
economies suffer from:
•  low standards of living
•  critical shortages of consumer goods
•  high prices
•  corruption and little freedom
Communism
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H
Source:MBusiness5thEdi:on
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Economic Systems
Socialism
•  An economic system in which the government owns
and operates basic industries but individuals own most
businesses
•  Most socialist countries are democratic and recognize
individual freedoms
•  The socialist system may allow a higher standard of
living and is more stable; but taxes and unemployment
are generally higher in socialist countries
S
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N
Source:MBusiness5thEdi:on
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Economic Systems
Capitalism,
or Free
Enterprise
Source:MBusiness5thEdi:on
•  An economic system in which individuals own and
operate the majority of businesses that provide goods and
services
•  Pure capitalism or free-market system happens when all
economic decisions are made without government
intervention; also called laissez-faire capitalism
•  Modified capitalism differs from pure capitalism as the
government intervenes and regulates business to some
extent
C
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N
Economic Systems
No country practices pure capitalism, socialism, or
communism
Mixed
Economies
•  Economies made up of elements
from more than one economic
system
•  No country practices a pure form of
any economic system, although
most favor one system over others
China and Russia have used state capitalism to
advance the economy, integrating the powers of the
state with the advantages of capitalism
Source:MBusiness5thEdi:on
Free-Enterprise System
Basic individual and business rights which must
exist in order to motivate companies to succeed
►  Right to own property
►  Right to earn profits and use them as one wishes
►  Right to determine business operations
►  Right to choose
!  Career to pursue
!  Where to live or where to locate a business
!  What goods/services to purchase and more
Source:MBusiness5thEdi:on
Forces of Supply and Demand
Supply
The number of
products businesses
are willing to sell at
different prices at a
specific time
The number of
products consumers
are willing to buy at
different prices at a
specific time
Source:MBusiness5thEdi:on
Demand
Equilibrium Price
Equilibrium
price is the
price at which
the number of
products
supplied equals
the amount of
products
consumers are
willing to buy at
a specific time
Source:MBusiness5thEdi:on
Compe::veStrategy
Source:MichaelE.PorterCompe::veStrategy
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The Nature of Competition
Competition is the rivalry among businesses for consumer’s dollars
Pure
Competition
Monopolistic
Competition
•  The market
structure that
exists when
there are
many small
businesses
selling one
standardized
product
•  Fewer
businesses
than in a
pure
competition
and the
differences
among the
goods they
sell are small
Source:MBusiness5thEdi:on
Oligopoly
Monopoly
•  The market
structure that
exists when
there are
very few
businesses
selling a
product
•  The market
structure that
exists when
there is only
one business
providing a
product in a
given market
Source:South-Western,apartofCengageLearning
A86012ManagementandPrinciplesof
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Economic Cycles and Productivity
May lead to
inflation – a
continuing rise
in prices
May lead to
recession – a
decline in
production,
employment
and income
Source:MBusiness5thEdi:on
Economic expansion occurs then an
economy is growing and people are
spending more money; their
purchases stimulate the production
of goods and services, which in turn
stimulates employment
Economic contraction is a
slowdown of the economy
characterized by a decline in
spending and during which
businesses cut back on
production and lay off workers
Economic Cycles and Productivity
Recessions are often characterized by rising levels of
"  Unemployment – the condition in which a percentage of
the population wants to work but is unable to find jobs
Deflation occurs when rising unemployment stifles demand,
forcing prices down
Severe recession may turn into a
"  Depression – a condition of the
economy in which unemployment is
very high, consumer spending is low,
and business output is sharply
reduced
Source:MBusiness5 Edi:on
th
Economic Cycles and Entrepreneurship
Many companies begin in times of economic recession
due to high unemployment and the tendency for people to
become less risk averse
# 
# 
Hewlett Packard, Revlon, and IHOP are just a few
examples of companies that began in suboptimal economic
conditions and survived to become large, profitable, and
long-lasting
The Great Recession of 2008 is no exception:
# 
# 
Groupon, founded in 2008, has since become publicly traded
and valued at near $10 billion
Playdom, a social game developer, was founded in 2008 and
sold for $500 million in 2010
SOURCES: Matt Rosoff “Born From the Ashes: Big Tech Companies Founded During Busts and Recessions”.
http://www.businessinsider.com/great-tech-companies-that-started-in-terrible-economic-times-2011-8?op=1; gbravo. “Famous Companies
Founded During an Economic Recession”.
http://www.resourcenation.com/blog/famous-companies-that-were-founded-in-an-economic-recession/3265/. (accessed September 18, 2013).
Source:MBusiness5thEdi:on
Measuring the Economy
Gross
Domestic
Product
(GDP)
Budget
Deficit
Source:MBusiness5thEdi:on
•  The sum of all goods and services
produced in a country during a year
•  Does not include profits from
companies’ overseas operations
•  The condition in which a nation
spends more than it takes in from
taxes
•  U.S. budget deficit has recently grown
to record levels; remedies include
raising taxes or reduce spending
Evaluating Our Economy
Source:MBusiness5thEdi:on
See the U.S.
Public Debit to
the Penny
GDPComparison2003-2014
Euro
EuroBillions
2003
2014
%Growth PerCapita
EU-28
10,490
13,921
32
27,300
France
1,637
2,142
31
32,400
Germany
2,217
2,904
31
35,200
Italy
1,391
1,616
16
26,600
UK
1,720
2,222
29
34,400
USA
10,176
13,112
29
41,100
Source:EurostatKeyFigureson
Europe2015
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Infla:onRates2014
%
EU-28
0,6
France
0,6
Germany
0,8
Italy
0,2
UK
1,5
USA
1,6
Source:EurostatKeyFigureson
Europe2015
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Employment
2014
Employment
%15-64
Youth
Employment
15-24
EU-28
64,9
32,5
France
64,3
28,4
Germany
73,8
46,1
Italy
55,7
15,6
UK
71,9
48,1
USA
68,1
n.a
Source:EurostatKeyFigureson
Europe2015
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