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CHAPTER THREE
Economic Challenges Facing
Global and Domestic Business
2-1
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Economics: Use of scarce resources to
produce goods/services, distribute them
among competing groups/individuals
2-2
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Economics: Creates Wealth
 Micro
v. Macro
2-3
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Economic Theory
ADAM SMITH
Freedom is vital
 “Invisible Hand” of competition

2-4
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Three Economic Systems
Mixed
Socialism
(Highly Controlled)
(Little Control)
Communism
Capitalism
2-5
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Capitalism
 Private
Property
 Profit/Ownership
 Freedom of Competition
 Freedom of Choice
2-6
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Supply Curve
High
Price(P)
S
Low
Quantity(S)
High
2-10
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Demand Curve
High
Price(P)
D
Low
Quantity(D)
High
2-11
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EQUILIBRIUM POINT
Surplus
High
Market Equilibrium
Price
S
Low
Shortage
Quantity
D
High
2-12
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Degrees of Competition
Monopolistic
Oligopoly
Competition
One
Many
Sellers
Monopoly
Pure Competition
2-13
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Monopoly = One Seller

Diamonds

Utilities
2-14
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Oligopoly = Few Sellers

Tobacco

Automobiles

Cereal
2-15
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Monopolistic Competition =
Many Sellers With Perceived Differences
Fast Food
 Clothing
 Colleges

2-16
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Pure Competition
Sellers
Buyer
2-17
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Key Economic Indicators

Gross Domestic Product (GDP)
www.bea.doc.gov/bea

Unemployment Rate

Price Indexes

Consumer Price Index(CPI)

www.stats.bis.gov/cpihome.htm
2-20
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U.S. Government
Economic Tools



Monetary Policy- management of
money supply
Fiscal Policy- management of taxes
and government expenditures
National Debt

$455 Billion in 2003 (4.6% of GDP)
2-23
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