Chapter 3
Economic
Challenges Facing
Global and
Domestic
Business
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Economics
 Economics—social science that analyzes
the choices made by people and
governments in allocating scarce resources.
 Microeconomics—study of small economic units,
such as individuals, families, and businesses.
 Macroeconomics—study of a nation’s overall
economic issues, such as how an economy
maintains and allocates resources and how
government policies affect the standards of living
of its citizens.
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Microeconomics:
The Forces of Demand and Supply
 Demand—willingness and ability of buyers to
purchase goods and services (at different
prices)
 Demand curve is typically downward sloping and to
the right, meaning lower prices/larger purchases
 Supply—willingness and ability of sellers to
provide goods and services (at different prices)
regardless of demand
 Supply curve is typically upward sloping, meaning
higher prices/higher supply
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 Factors Affecting
Demand for
Automobiles:
Consumer
Preferences,
Incomes and the
Prices of
Substitute
Products
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 Demand Curve for Gasoline
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 Shift in the Demand Curve for Gasoline
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 The Milk Industry
Trying to
Increase Overall
Demand for its
Products
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 Supply Curve for Gasoline
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Factors Driving Supply
 Central role in determining the overall supply
of goods and services is played by factors of
production
Natural resources
Human resources
Physical facilities
Entrepreneurship
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 The intersection of the Supply and
Demand Curves is the Equilibrium Price
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Macroeconomics: Issues for the Entire Economy
 Capitalism: The Private Enterprise System
economic system in which business success or
failure depends on how well firms match and counter
the offerings of competitors
• Types of Competition
Pure competition
Monopolistic competition
Oligopoly
Monopoly
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 Monopolistic
Competition
Relies on
Differentiation of
Products in a
Market
Purina One
Special Care
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 Gulfstream
Airplanes:
Oligopolistic
Industrial
Products
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 Rawlings is the
only supplier of
baseballs for
Major League
Baseball and the
NCAA
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Planned Economies:
Communism and Socialism
 Communism: planned economic system in
which private property is eliminated, goods
are owned in common, and factors of
production and production decisions are
controlled by the state
 Socialism: planned economic system
characterized by government ownership and
operation of all major industries
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Mixed Market Economies
 Economic system that combines
characteristics of both planned and market
economies in varying degrees, including the
presence of both government ownership and
private enterprise
Privatization
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 Four Stages of the Business Cycle
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Productivity and the Nation’s Gross
Domestic Product
 Productivity—relationship between the
goods and services produced in a nation
each year and the inputs needed to produce
them.
 Gross domestic product—the sum of all
goods and services produced within a
nation’s boundaries each year.
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Price-Level Changes
 Consumer Price Index (CPI)—measures the
monthly average change in prices of goods
and services
Inflation—rising prices caused by a
combination of excess consumer demand
and increases in the costs of raw materials,
human resources, and other factors of
production.
Deflation—falling prices economic
situation characterized by soaring prices
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 Four Types of Unemployment
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Managing the Economy’s Performance
The government uses both Monetary and Fiscal
Policy to control inflation, reduce unemployment,
improve the general welfare of citizens, and
encourage economic growth.
 Monetary Policy— Handled
by the Federal Reserve and
involves increasing or
decreasing the money supply
 Fiscal Policy – Handled by
the government through taxes
and spending
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Fiscal Policy
 Budget—organization’s plan for how it will
raise and spend money during a given period
of time.
 Budget deficit—funding shortfall that results
when the government spends more than the
amount of money it raises through taxes and
fees
 National debt
 Budget surplus
 Balanced budget
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 Where Federal Tax Revenues Come from
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What’s wrong with this picture?
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What’s wrong with this picture?
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What’s wrong with this picture?
http://www.econoclass.com/whatswrongwithpicture.html
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