Economics: Macro vs. Micro

• Understanding business trends is covered in chapters 1-4.
• Starting a Business is covered in chapters 5-6.
• Managing Human Resources is covered in chapters 10-12.
• Business Management is covered in chapters 7-9.
• Marketing is covered in chapters 13-16.
• Managing Financial Resources is covered in chapters 17-18.

Major Branches of Economics

• Economics studies how society uses resources to produce goods/services for consumption among groups and individuals.
• Macroeconomics focuses on the operation of a nation's economy as a whole.
• Microeconomics focuses on the behavior of people and organizations in markets for particular products/services.

Thomas Malthus & the Dismal Science

• Malthus thought resources would run out if the rich had the wealth and the poor had most of the population.
• Thomas Carlyle labeled economics as “The Dismal Science" due to Malthus's belief.
• Neo-Malthusians think radical birth control is the answer because they believe there are too many people in the world.

Population as a Resource

• Some economists don't agree with Malthus and believe a large population can be a resource.
• An educated population is highly valuable.
• Business owners provide jobs and promote economic growth for employees and the community.

Adam Smith: Father of Economics

• Freedom was vital to any economy's survival
• Freedom to own land or property and the right to keep business profits are essential.
• People will work hard if they believe they will be rewarded.

The Invisible Hand Theory

• The economy prospers when people improve their own situations through the production of goods, services, and ideas.
• Invisible Hand: Self-directed gain leads to social and economic benefits for the whole community.

Understanding the Invisible Hand Theory

• A farmer earns money from selling crops to the community.
• The farmer hires more farmhands to produce more crops and earn more money.
• As the farmer produces more crops and provides them to the community, they also benefit their employees.

John Maynard Keynes

• Keynes had great influence on US economic policy
• During a recession, the government should increase spending and cut taxes to stimulate the eonomy in the short term
• Keynes wrote "The General Theory of Employment, Interest and Money" in 1936.

Capitalism

• Most or all of the land, factories, and stores are owned by individuals and operated for profit, rather than the government.
• Nations with capitalist foundations include the United States, England, Australia, and, Canada.

State Capitalism

• State Capitalism: The state, instead of private owners, runs some businesses.
• China and Russia are examples of countries that practice state capitalism.
• These countries have seen success using capitalistic principles, but the future is uncertain.

Capitalism's Four Basic Rights

• The right to own private property.
• The right to own a business and keep its profits.
• The right to freedom of competition.
• The right to freedom of choice.

Free Markets

• Free Market: The market makes decisions about what and how much to produce.
• Consumers send signals about their preferences.
• Prices indicate how much of a product companies should produce.
• The price of something wanted but hard to get will rise until more products are available.

Circular Flow Model

• The circular flow model describes how resources and money flow between households and businesses in an economy.
• Households provide inputs (factors of production) to businesses and receive input payments in return.
• Businesses provide goods and services to households in exchange for buying power.

Supply Curves

• Supply: The amount of products businesses are willing to sell at different prices.

Demand Curves

• Demand: The quantity of products that consumers are willing to buy at different prices.

Equilibrium

• Market Price (Equilibrium Point): Determined by supply and demand, this is the negotiated price.

Four Degrees of Competition

• In perfect competition, there are many sellers.
• In monopolistic competition there are fewer sellers
• In Oligopoly, there are only a few dominant firms
• In a Monopoly there is only one company, and they control the market

Perfect Competition vs. Monopolistic Competition

• In perfect competition, there are many producers(sellers in the market), the good and services available are homogeneous, firms do not have control over prices, branding/marketing is not important and entry barriers are zero
• In monopolistic competition, there are still many producers, the goods and services are differentiated, firms have some pricing power, branding/marketing is key

Free Market Benefits & Limitations

• Benefits:
  • It allows for open competition among companies.
  • It provides opportunities for poor people to work their way out of poverty.
• Limitations:
  • People may start to let greed drive them.

The Government Needs...

• Individual Tax Rates from Around the World shows the Corporate and Individual taxes and Social Security Tax rates for different countries.

Socialism

• Socialism: An economic system where basic businesses (like utilities) should be owned by the government to distribute profits evenly.
• Entrepreneurs run smaller businesses.
• Citizens are highly taxed.
• The government is more involved in protecting the environment and the poor.

Benefits Of Socialism

• Social equality
• Free education
• Free healthcare
• Free childcare
• Longer vacations
• Shorter work weeks
• Generous sick leave.

Negatives of Socialism

• Few incentives for businesspeople to take risks.
• Brain Drain: The country's best and brightest workers move to capitalistic countries for more opportunities.
• Fewer inventions/innovations because the reward is not as great as in capitalistic countries.

Communism

• Communism: An economic and political system where the government makes almost all economic decisions and owns almost all the major factors of production.
• Prices don't reflect demand, which may lead to shortages of items.
• Most communist countries suffer severe economic depression, and citizens fear the government.

Two Major Economic Systems

• Free-Market Economies: The market largely determines what goods/services are produced, who gets them, and how the economy grows.

• Command Economies: The government largely determines what goods/services are produced, who gets them, and how the economy grows.

Mixed Economies

• Mixed Economies: Some allocation of resources is made by the market, and some is made by the government.
• Neither free-market nor command economies have created sound economic conditions, so countries use a mix of systems.

Trending Toward Mixed Economies

• Communist governments are disappearing.
• Socialist governments are cutting back on social programs and lowering taxes, moving toward capitalism.
• Capitalist countries are increasing social programs, moving more toward socialism.

Gross Domestic Product (GDP)

• Gross Domestic Product (GDP): The total value of final goods/services produced in a country in a year, even if they are foreign-owned.

• When the GDP changes, businesses feel the effect.

• Gross Output (GO): A measure of the total sales volume at all production stages. A broader measure of the economy than GDP.

GDP (Nominal) vs. GDP (PPP)

• Nominal GDP: The total market value of final goods and services produced in a country in a given period, without considering cost of living.
• GDP (PPP): Gross domestic product based on purchasing power parity, which takes into account the relative cost of local goods.

Unemployment

• Unemployment Rate: The percentage of the civilian labor force that is unemployed, ages 16-years or older, and actively seeking work within the prior four weeks.
• Four Types of Unemployment:
  • Frictional
  • Structural
  • Cyclical
  • Seasonal

Consumer Price Index

• Consumer Price Index (CPI): Monthly statistics measure the pace of inflation or deflation.
• The government computes the costs of goods and services to see if they are going up or down.
• The CPI affects wages, rent/leases, tax brackets, government benefits and interest rates for citizens.

Inflation

• Inflation: The general rise in the prices of goods and services over time.
• Disinflation: When the price increases are slowing (inflation rate declining).
• Deflation: Prices are declining because too few dollars are chasing too many goods.
• Stagflation: The economy is slowing, but prices are still going up.

Producer Price Index (PPI)

• Producer Price Index (PPI): An index that measures prices at the wholesale level.

Productivity

• Productivity in the U.S. has risen because of technological advances.
• Productivity in the service sector grows more slowly because of fewer technologies.

Productivity in the Service Sector

• Higher productivity leads to lower costs of producing goods and services, which helps lower prices.
• New technology adds quality to the services, but not to the worker's output.
• To calculate the quality and quantity of output, a new form of measurement needs to be created.

Business Cycles

• Business Cycles: Periodic rises and falls that occur in economies over time.
• Four Phases of Long-Term Business Cycles
  • Economic Boom
  • Recession: Two or more consecutive quarters of decline in the GDP.
  • Depression: A severe recession.
  • Recovery: When the economy stabilizes and grows, leading to an economic boom.

Fiscal Policy

• Fiscal Policy: The federal government's efforts to keep the economy stable by increasing or decreasing taxes or government spending.
• Tools of Fiscal Policy:
  • Taxation
  • Government Spending

National Deficits, Debt & Surplus

• National Deficit: The amount of money the federal government spends beyond what it gathers in taxes.
• National Debt: The sum of government deficits over time.
• National Surplus: When the government takes in more than it spends.

Monetary Policy

• Monetary Policy: The management of the money supply and interest rates by the central bank of countries.
• The Central Banks (e.g., Bank of Korea, Federal Reserve Bank) most visible role is increasing and lowering interest rates.
  • When the economy is booming, the central banks tend to increase interest rates.
  • When the economy is in a recession, the central banks tend to decrease the interest rates.

Business Basics

• Goods are tangible products like computers, food, cars and appliances.
• Services are intangible products like education, healthcare, insurance, recreation and travel.

Business and Entrepreneurship

• Business: Any activity to provide goods and services to others operating at a profit.
• Entrepreneur: Someone who risks time and money starting and managing a business.
• Strategy for successful business is often is often based on finding and filling a need

Revenue, Profit and Loss

• Revenue: The amount of money a business earns in a given period from selling goods and services.
• Profit: The amount of money a business earns above, beyond and after what it spends for salaries and other expenses.
• Loss: When a business's expenses are more than its revenues.

Risk

• Risk: The chance an entrepreneur takes of losing time and money on a business that might not prove profitable.
• Not all businesses make the same amount of profit.
• Businesses that take great risks could reap great profit.

Stakeholders

• Stakeholders: All those affected by a business's policies and activities that must be addressed.
  • Customers
  • Employees
  • Stockholders
  • Suppliers
  • Dealers
  • Community Members
  • Media
  • Elected Officials
  • Bankers
  • Environmentalists

Non-Profit Organizations

• Non-Profit Organization: An organization whose purpose is not to make personal profit for its owners/organizers.

Keeping Strong Employees At Nonprofits

1. Set ambitious, but realistic goals for the team.
2. Allow workers to engage directly with the parties they're serving.
3. Grant workers ample time off, because the work is strenuous.

Social Entrepeneurs

• These individuals employ business principles on non-profit organizations and direct their efforts toward addressing diverse social problems and unmet needs.
• Muhamad Yunus, who established Grameen Bank, earned a Nobel Prize for bringing community banking to rural Bangladesh by providing low-interest rates.

The Ups and Downs of Entrepenuership

• The ups are the freedom to succceed and the freedom to make your own decisions. It also brings the possiblity of great wealth and getting to hire your own team.
• The downs are the freedom to fail, and not getting perks and benefits. You don't get paid vacations, health insurrance or daycare

Five Factors Of Production

• Land, labor, capital, entrepreneurship, and knowledge.
• Entrepreneurs use their knowledge to grwo their businesses and increase wealth

What Is The Business Environment?

• Elements affecting business:
  • Laws & regulations
  • Technology
  • Competition
  • Social trends
  • Business management
  • Job creation

Government's Role In Business

Government promotes business by…

• Minimizing taxes, spending and regulations
• Allowing private ownership of businesses
• Minimizing interference with the free exchange of goods and services
• Passing business law that enables enforceable contracts.
• Establishing a currency that's tradable in workd markets.
• Minimizing corruption.

Corruption Worldwide

• Least Corrupt; Denmark, New Zealand, Finland, Sweden, Norway
• Most Corrupt; Somalia, North Korea, Afghanistan, Sudan, South Sudan

Benefits of Technology

• Technology: Hardware and software that make businesses more effective, efficient, and more productive.
• Effectiveness: The business is producing the desired result
• Efficiency: The business is producing goods and services by using the least amount of resources
• Productivity: the amount of output you generate give the amount of input (example: hours tou work).