ECONOMICS
Your One-Day Crash Course!
Today’s Objective
Identify basic micro and macro
economic concepts.
 Supply & Demand
 Economic Indicators
 Business Cycle
 Economic Cycle
SUPPLY & DEMAND
What is it?
SUPPLY
DEMAND
the number of
goods that
producers are
willing to SELL
at a particular
price
the number of
goods that
consumers are
willing to BUY at
a particular
price
Law of Supply
As price
increases, the
amount
producers are
willing and able
to produce will
also increase.
P3
P2
P1
Q1
Q2
Q3
THINK ABOUT IT…
Name something that is currently
in high supply & low demand.
Law of Demand
As price
increases, the
amount that
consumers are
willing and able
to pay will
decrease.
P3
P2
P1
Q1
Q2
Q3
THINK ABOUT IT…
Name something that is currently
in low supply & high demand.
Graphing
 Equilibrium – supply
D
S
P3
and demand are
equal
** point of max. profit
 Shortage – demand
P2
exceeds supply
P1
 Surplus – supply
Q1
Q2
Q3
exceeds demand
Effects on the Economy
 If there is a shortage, this means that there is
less supply from producers than there is
demand from the consumer. Who has more
control over the market? The buyer or the
seller?
 If there is a surplus, this means that there is
more supply from producers than there is
demand from consumers. Who controls the
market?
REVIEW
 Define supply & demand.
 Law of Supply
 Law of Demand
 Parts of a Supply & Demand graph
 Seller’s Market vs. Buyer’s Market
GRAPHING WORKSHEET
ECONOMIC INDICATORS
How do you measure up?
Student
performance is
measured by:
Baseball
performance is
measured by:
 GPA
 Batting Average
 SAT
 Strikeouts
 Class Rank
Economic Indicators
 Economic indicators are figures used to
measure a country’s economic
performance.
 We measure things like:
 how much a country produces
 whether a country’s economy is growing
 how a country’s economy compares to
others
Gross Domestic Product
 GDP is the total market
value of all goods &
services produced in a
country in a given year.
 Released the last day of
each quarter (reflects
the previous quarter)
 Key: look for the growth
rate of GDP (typically 2.5
to 3 % each year)
Measuring the GDP
 One of the most
important indicators of
economy’s status
 The U.S. has a very high
GDP as compared to other
countries.
 Examples
 Canada: $1.279 trillion
 North Korea: $40 billion
 China: $8.748 trillion
What GDP Tells Us…
 Changes in GDP show
whether the
economy is growing
or slowing
 Commonly used to
gauge a country’s
standard of living
Inflation Rate
 Inflation is a general
increase in the price of
goods & services.
 Measured by the
Consumer Price Index
(CPI)
 Released at 8:30 a.m.
around the 15th of each
month (reflects previous
month)
What causes inflation?
Supply < Demand
 Could result from:
 War
 Price of imports
 Too much money in
circulation
What Inflation Tells Us…
Indicates that
the cost of
living is
getting more
expensive
Purchasing Power of the Dollar
1
0,9
0,8
0,7
0,6
0,5
0,4
0,3
0,2
0,1
0
2011
2010
2005
2000
1990
1980
1970
1950
1914
The Price of Gas (per gallon)
4
3,5
3,5
3
2,5
2
1,5
1,16
1,25
1
0,5
0,36
0,31
0,23
1970
1960
1950
0
2012
1990
1980
Unemployment Rate
 Unemployment
measures the number of
people who are able &
willing to work but
cannot find work.
 Shows whether the
economy is picking up
or slowing down
 Released on the first
Friday of each month
Unemployment
Retail Sales Index
 Measures goods sold
within the retail industry,
from huge chains to small
local stores
 Released around the 12th
of the month
 Does not include money
spent on services
 Shows if consumers are
spending or saving
In Summary…
 What is the purpose of economic indicators?
 What is GDP? What does it tell us?
 What is the inflation rate? What does it tell us?
 What is the unemployment rate? What does it
tell us?
 What is the Retail Sales Index?
 Which indicators are lagging? Which are
leading?
THE BUSINESS CYCLE
…the economic roller coaster!
The Business Cycle
 Economies naturally go through ups &
downs.
 The business cycle is the rise and fall of
economic activity over time.
 In the United States…
 1930s, 50s, 70s, 2000s characterized by a drop in
economic activity & rise in unemployment
 Slumps followed by new waves of increased
productivity and increased GDP
STAGES OF THE CYCLE
Prosperity
 Also known as the
“peak”
 Higher wages, more jobs
available, higher
demand for
goods/services
 Unemployment is low,
GDP is high
 People are spending!
Recession
 Economic activity slows
down – less production
of goods, downturns in
industry
 GDP decreasing,
unemployment
increasing
 People are starting to
save!
Depression
 Also known as a “trough”
 Deep recession that lasts
for years and affects the
entire economy
 Unemployment is high, GDP
is low
 Government starts trying to
“stimulate” the economy
 People are saving!
Recovery
 Also known as “expansion”
 Rise in business activity
after a recession or
depression
 Innovation occurs –
businesses start bringing
out new products &
services
 Unemployment
decreasing, GDP
increasing
ENTREPRENEURS WHO
ROSE FROM THE ASHES
Many of today’s Fortune 500 companies came from recessions or depressions…
General Motors
 The Panic of 1907
 William C. Durant
 High school drop-out
working as a manager of
Buick in Detroit
 Acquired Oldsmobile,
Cadillac, Pontiac
 Launched Chevrolet
(later joined GM in 1917)
Playboy Enterprises
 Recession of 1953
 Hugh Hefner
 Former employee of
Esquire who quit when
his boss refused to give
him a $5 raise
 Designed his own
magazine with the help
of his friends
Sirius Satellite Radio
 Early 1990s Recession
 Robert Briskman
 Former NASA engineer
 COO at Geostart (satellite
messaging company)
 Figured out how to
broadcast digital radio
signals via satellite
 Merged with XM Satellite
Radio in 2008 to provide
commercial-free radio 24
hrs/day
REVIEW
What are the four stages of the
business cycle?
How is each stage characterized
by economic indicators?
 GDP? Unemployment? Spending or
saving?
THE EFFECT OF
ECONOMIC CYCLES
Who is Particularly Impacted?
While the economy as a
whole is negatively
impacted by economic
cycles, certain companies
and industries are
particularly sensitive to
overall changes.
Durable Goods
 People tend to cut back on the purchase of
durables, as the ones they already have can
last through the recession.
 Manufacturers of DURABLE GOODS like cars,
appliances, and electronics are among the
most impacted.
 Durables usually benefit the most from booms.
As disposable income increases, consumers
are likely to go out and buy a new car or iPod.
Transportation
 GM, Ford, Chrysler and other car
companies are significantly
impacted by recessions.
 Consumers put off buying new cars
or purchase less expensive models.
 United Airlines & British Airways
are leading airlines that suffer in
recessions.
 FedEx & UPS experience less
volume in mailed packages during
recessions.
Manufacturing
 Whirlpool and Sears are
home appliance
manufacturers subject
to decline in demand
during recessions.
 Demand for appliances
is tightly linked to new
home sales, which slow
during recessions.
Construction
 Home Depot & Lowe’s
are home
improvement
retailers.
 Performance is
correlated to the
house market, which
declines during
recessions.
Other Industries
 Investment Services
 Merrill Lynch
 Morgan Stanley
 Goldman Sachs Group
 JP Morgan Chase
 Hotels
 Home Security
 Luxury Commodities
(jewelry like Zales)
 Advertising Firms
Who is Less Impacted?
 Certain goods are relatively protected from
the impact of economic cycles. Goods that
have a relatively INELASTIC DEMAND with respect
to income are generally shielded.
 For example, no matter how bad the economy
gets, people have to eat and will continue to
purchase food. This is particular true for
staple foods like bread.
Who is Less Impacted?
 Food Manufacturers & Retailers
 Safeway
 Wal-Mart
 Pepsi
 Kraft
 Addictive Substances (tobacco)
 Medicine & Medical Equipment
 Utilities
REVIEW
 What are durable goods?
 Which industries are most significantly
impacted by economic downturns?
 What is inelastic demand?
 Which industries are relatively unaffected by
economic rises or falls?
ECONOMICS IN A DAY!
Supply & Demand, Economic Indicators,
Business Cycle, Economic Cycle