Chapter 13 Understanding The Economy (Introduction To Business) PDF

CHAPTER 13 Understanding the Economy INTRODUCTION TO BUSINESS Learning Objectives To describe the difference between microeconomics and macroeconomics To describe how supply and demand interact with each other To explain how shortages and surpluses occur To compare the differe...

CHAPTER 13 Understanding the Economy INTRODUCTION TO BUSINESS Learning Objectives To describe the difference between microeconomics and macroeconomics To describe how supply and demand interact with each other To explain how shortages and surpluses occur To compare the difference between inelastic and elastic demand To explain how comparative advantage is determined To describe the forms of competition To define the business cycle What Is Economics? We live the principles of economics every day ○ Face limits ○ Determine trade-offs ○ How markets work ○ How countries trade ○ Government involvement Economics Is Divided Into Two Subfields: Microeconomics Macroeconomics Studies how individuals, Studies the economy-wide households, and companies impact of phenomena make decisions and how they Studies how economies, interact with markets. countries, and even regions For example: look at the impact of the world interact with of student loan interest rates and how that impacts the markets supply and demand for colleges Both areas are interrelated Microeconomics Within Microeconomics There Are Five Key Notions To Think of: Opportunity Costs Scarcity Trade Offs The value missed Having less than Balancing of out on when you the quantity giving up one choose between demanded thing to get two or more another options Within Microeconomics There Are Five Key Notions To Think of: (cont.) Time The Seen and the Unseen One of our Understanding most precious what is easy to see and scarce and those things resources that are not easy to see Supply and Demand Supply and Demand (cont.) Equilibrium for Supply and Demand Changes In Demand Changes In Supply  In pairs or groups, let us assume you been asked to write a blog post for those who missed the In-class class. Compare notes and write such blog post. exercise: The title will be: “The top 5 points about supply Recap and demand.” what you learned Shortages and Surpluses Understanding the Equilibrium Price Is Important - ‘What If’ Scenarios A key scenario is what happens to the quantity supplied and demanded if the price changes. Before we look at the next figure, try to determine what will happen to the supply of leaf raking if the price goes up? And, what happens to the demand for leaf raking if the price goes down? Surplus Shortage Complementary VS Substitute Goods Goods + Brand 1 $$ vs. Brand 2$ Tuna vs. Salmon Butter vs. + Margarine Types of Supply and Demand Inelastic demand means that even with large changes in price, there will be little change in the quantity demanded. Types of Supply and Demand (cont.) Elastic demand: as the price increases, the quantity demanded can have large changes i.e. luxury products Comparative Advantage Adam Smith’s 1776 book, The Wealth of Nations. ○ Describes how workers would divide their labor and become a specialist at a task. Absolute advantage Comparative advantage Macroeconomics Comparative Advantage and Trade Absolute and comparative advantage work the same way when countries are setting economic policy Four key concepts: Imports Exports Tariffs Subsidy Forms of Competition Pure competition Oligopoly Monopoly Regulated Monopoly The Business Cycle Peak Growth Fiscal Recession Policy Monetary GDP Policy