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What is economics?
Learning objectives
PASS
• To describe different stakeholders who
influence the purpose of Tesco and Quest
Merit
• To explain the points of view of the different
stakeholders trying to influence Tesco and
Quest
• To analyse the influence these stakeholders
exert on Tesco or Quest
Distinction
What is the economy?
Economy
“the state of a country or region in terms of the
production and consumption of goods and
services and the supply of money”
“Careful management of available resources”
What is GDP?
• Gross domestic product is how much a
country produces over a period of time.
• For nations, the GDP can be calculated by
adding up its output (what it produces and
sells) inside the borders of the country.
• This measure is often used to find out how
healthy a country is.
The Business Cycle:
If we drew a diagram of GDP over time, we
would see a pattern something like this:
GDP
Time
The Business Cycle:
If we drew a diagram of GDP over time, we
would see a pattern something like this:
GDP
The long term trend is that GDP is going
up.
Time
The Business Cycle:
However, it tends to go up for a while and then
down and then up and so on.
GDP
Time
The Business Cycle:
This pattern of the economy doing well and then
badly in cycles is known as the Business Cycle.
GDP
Time
The Business Cycle:
This point is known as a Boom: GDP is increasing. When
GDP increases, it is known as Economic Growth.
GDP
Boom
Time
The Business Cycle:
This point is known as a Recession:
GDP is decreasing. Economic Growth is
negative.
GDP
Recession
Time
The Business Cycle:
When GDP is at the highest point in the
cycle, this is known as a Peak.
GDP
Boom
Peak
Recession
Time
The Business Cycle:
When GDP is at the lowest point in the
cycle, this is known as a Trough.
GDP
Boom
Recession
Peak
Trough
Time
What does this graph tell us?
THINK
PAIR
SHARE
The Business Cycle:
•Businesses are affected by the state of the
economy.
•Generally, businesses do well in a Boom and
badly in a Recession
During a Boom, people have
more money to spend and
they tend to be more
confident of the future
- so they buy more things.
This is clearly very good for
businesses.
The Business Cycle:
•Businesses are affected by the state of the
economy.
During a Recession, people
have less money to spend
and they tend to be less
confident of the future
- so they buy fewer things.
This is clearly very bad for
businesses.
However...
•There are some exceptions to the rules
•Some businesses do very well in recessions.
•Can you think of a business that might do
well in a recession? Why might they do
well?
For example, Supermarkets may do well because
people can no longer afford to go to restaurants to eat.
However...
•There are some exceptions to the rules
•Some businesses do poorly in Booms.
•Can you think of a business that might do
well in a recession? Why might they do
well?
For example, Bus companies may do poorly
because more people can afford to have cars.
The effect of the business cycle on businesses
Summary:
Summary:
Businesses are affected
by how well the
economy is doing.
The economy goes through
periods of Booms and Recessions
- This pattern is known as the
Business Cycle.
Most businesses do well in
Booms and poorly in
Recessions - but there are
exceptions!
Summary: of business cycle stages:
Key features
Stages of Business Cycle
Key Features
Boom
Recession
•Profit fall
•Demand is low •Interest rates rise
•Investment falls •Inflation increases
•Some firms unable to satisfy
Likely reactions
Stages of
Business Cycle
Key Features
Likely reactions by Businesses
•Inflation increases
•Some firms unable
to satisfy demand
•Interest rates rise
Recession •Demand is low
•Investment falls
•Profit fall
Boom
•Firms look for new
markets
•Prices likely to rise
•Many firms close
•Workers are laid
off
•Demand is expected to fall •Wage rise
Summary:
Summary:
Stages of
Business Cycle
Key Features
Boom
•Inflation increases •Prices likely to rise
•Some firms unable •Wage rise
to satisfy demand •Demand is expected to fall
•Interest rates rise
Recession •Demand is low
•Investment falls
•Profit fall
Likely reactions by Businesses
•Firms look for new markets
•Workers are laid off
•Many firms close
Let us look in more detail at how firms are affected by
booms and recessions.
Most firms do well during Booms because
the Demand for their products increases.
However, it can be more
difficult to recruit workers
during a boom because
jobs are easier to find and
there are fewer unemployed
people looking for work.
Firms may have to offer
better pay or conditions in
order to attract workers.
Let us look in more detail at how firms are affected by
booms and recessions.
Most firms do badly during Recessions
because the Demand for their products
decreases.
However, it is often easier to
recruit people because there
are plenty of unemployed
people looking for work.
Also - land, raw
materials etc. can be
cheaper to buy.
Paired
Questions:
Summary:
Choose one of the questions below
and come up with an answer.
1. What can businesses do to avoid the
worst impacts of recessions?
2. How does the trade cycle impact upon
businesses?
3. Why do some firms benefit from
increased trade during recessions?
Name:
GDP
Label the sections of the business cycle and then write
a description for each section
Time
Begin P5
• Slide 1 – An introduction which describes what the economy
is and what it involves
• Slide 2 – An illustration and description of the different stages
in an economic cycle
• Slide 3 – Graph showing current growth or decline in the UK –
the chart should be recent (e.g. last 10 years). You must label:
– Peak
– Trough
– Period of growth
– Period of decline
– The most significant point