Download ECONOMICS

Business Management Agenda:
3.26.13
• Tuesday, March 26th – Chapter 6.1 Notes
& Activity
• Thursday, March 28th – Chapter 6.2 Notes
& Activity
• Tuesday, April 2nd – Chapter 6 Review
• Thursday, April 4th – Chapter 6 Test (Who
will ace it?!)
Chapter 7 – The Big One…
• International Business
– Your BIG project for this class!
– Group project – You pick your group (teams
of 2-3)
Kind of dry…
Very black and white...
Very important!!
ECONOMICS
Chapter 6
Objectives
• Explain the concepts of scarcity and
opportunity cost.
• Recognize how supply and demand work
to determine price.
• Understand why businesses contract and
expand during different phases of the
business cycle.
Making Decisions in a
Market Economy
Section 1
Allocating Resources
• All societies have resources
– Try to figure out how best to use them to
produce goods and services
• ECONOMICS – the study of how societies
decide what to produce, how to produce it,
and how to distribute what they produce.
• SCARCITY – too few resources are
available for everyone in the world to
consume as much as he or she would like.
Opportunity Cost
• Producing one good means not producing
another
• OPPORTUNITY COST – the loss
associated with the best opportunity that is
passed up
– Businesses and individuals need to consider
opportunity cost whenever they choose one
option over another
Economic Systems
• COMMAND ECONOMY – government
decides what goods and services are
produced
– Decisions made by command, not consumer
taste
• MARKET ECONOMY – private companies
and individuals decide what to produce
and what to consume
– Government plays minor role in regulating
– Based on competition
Law of Supply and Demand
•
•
•
•
How do you know what to produce?
How do you know how much to produce?
How do you know how much to charge?
In a market economy, supply and demand
determine the prices and quantities of the
goods and services that are produced.
Law of Demand
• DEMAND – the quantity of a good or
service individuals are willing to purchase
at various prices
– Depends on individuals’ needs and wants, as
well as their income
• LAW OF DEMAND – as the price of a
good increases, the quantity of the good
demanded falls
The Demand Curve
The Law of Supply
• SUPPLY – price affects the amount of a
good producers produce
• LAW OF SUPPLY – as the price of a good
rises, producers are willing to supply more
of a good.
The Supply Curve
Determining Price
• The law of supply and demand determines
prices in a market economy.
– The price of a good or service adjusts until the
amount producers are willing to produce
equals the amount consumers are willing to
consume
• EQUILIBRIUM PRICE – the price at which
supply equals demand.
Supply & Demand
• SURPLUS = Supply > Demand
• SHORTAGE = Demand > Supply
Determining Profits
• Understanding supply and demand is
important because it helps managers
determine the prices they should charge!
• Setting prices correctly affects how much
profit a business earns.
• PROFIT – the difference between what a
business earns (revenue) and what it
spends (costs).
Estimating Revenue & Costs
REVENUE
• Forecast how many units of a good they will sell
 try to gauge consumer demand
– Test the product in small market
COSTS
• FIXED COSTS – costs a business absorbs
regardless of the number of units produced
• VARIABLE COSTS – costs that rise or fall
depending on how much of a good or service is
produced
Breakeven Analysis
• BREAKEVEN ANALYSIS – reveals how
many units of a good or service a business
needs to sell before it begins earning a
profit
• BREAKEVEN POINT – the point at which
revenue is sufficient to cover all costs
Take out your homework…
• Check the board to see if your work is
correct!
• What questions do you have?
• This handout goes in your Bus. Mgmt.
binder.
Opportunity Cost…
• One of the most important lessons we can
learn.
• But WHY??
• Delayed Gratification
Defining the Terms…
• Instant Gratification – An unwillingness
to give up something now in return for
something later
• Delayed Gratification – A willingness to
give up something now in return for
something later
The Business Cycle
Section 2
Phases of the Business Cycle
• Almost all businesses experience periods
during which they grow and periods during
which they contract.
• BUSINESS CYCLE – expansion and
contraction by many industries at once
– Consists of several phases, which occur
every few years
– 2 major phases
• EXPANSIONARY PHASE
• CONTRACTIONARY PHASE
Expansionary Phase
• Occurs when consumer spending is strong
and companies invest in new factories and
equipment
• Unemployment usually declines
• Wages, prices, and interest rates usually
rise
• As expansion continues, prices rise so
much that both businesses and
consumers cut back on purchases and
companies stop expanding.
Contractionary Phase
• Consumers reduce purchases and business
investment slows
• Unemployment rises
• Consumer spending falls  companies reduce
production and employment even further
• Economic growth declines
– RECESSION – growth falls for two three-month
periods in a row
– DEPRESSION – business activity remains far below
normal for years
Business Cycle
Economic Indicators
• Businesses want to predict then changes
in the business cycle might occur.
• No one can predict with certainty, but
managers can try to forecast these events.
• ECONOMIC INDICATORS – data that
show how the economy is performing
– Housing loans, bankruptcies
Economic Indicators
• LEADING ECONOMIC INDICATORS –
economic measures that rise or fall before
other measures
• COINCIDENT INDICATORS – occur at
the same time as changes in the business
cycle.
• LAGGING INDICATORS – occur after
changes in the business cycle
Independent Practice
• Business Cycle Quick Lesson
– Watch the Video
– Take the Quiz