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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