How Economic Issues Affect Business PDF

**How Economic Issues Affect Business** **Microeconomics** looks at the behaviour of people and organizations in particular markets. **Macroeconomics** looks at the operation of a nation's economy as a whole. **Good MC question(s) to identify the difference between Micro and Macro** **Adam Smith...

**How Economic Issues Affect Business** **Microeconomics** looks at the behaviour of people and organizations in particular markets. **Macroeconomics** looks at the operation of a nation's economy as a whole. **Good MC question(s) to identify the difference between Micro and Macro** **Adam Smith**-***Wealth of Nations (1776)*** - **capitalism** as a system of rights and freedoms and believed that people will work hard if they have incentives for doing so---that is, if they know that they will be rewarded. (**Economist, book name and date likely a MC question**) **Foundations of Capitalism** - [How a free market works:]-- Many buyers and sellers trading freely determine the prices at which they will exchange goods and services. - [How prices are determined: -] The constant interplay between supply and demand determines an equilibrium price at which a transaction will occur. - [Equilibrium Point] - place where quantity demanded and quantity supplied meet is called the equilibrium point. This is the price at which a transaction will occur. In the long run, that [price would become the market price - determined by demand and supply] - [Demand] refers to the quantity of products that people are willing to buy at different prices at a specific time. - [Supply] refers to the quantity of products that manufacturers or owners are willing to sell at different prices at a specific time. **Four Degrees of Competition Likely need to memorize list and definitions of each** 1. **Perfect Competition** 2. **Oligopoly** 3. **Monopoly** 4. **Monopolistic Competition** 1. **Perfect competition** exists when there are many sellers in a market and no seller is large enough to dictate the price of a product. a. EXAMPLES: Perfect competition is what would exist at a flea market, or an ethnic community where everybody is a small player and nobody dominates 2. **Oligopoly** occurs when a few sellers dominate a market. b. Oligopolies exist in industries that produce products in the areas of oil and gas, tobacco, automobiles, aluminum, and aircraft. c. Oligopolies in Canada also exist in the banking sector where we have a few big players, and no small banks. d. One reason some industries remain in the hands of a few sellers is that the initial investment required to enter the business is tremendous -- like the airline industry. 3. **Monopoly** occurs when there is only one seller for a good or service, and that one seller e. Traditionally, monopolies were common in areas such as water, electricity, and **Economic Systems: Great short answer question - describe the differences or at least be able to recognize the definition and will be 1-3 MC questions!** - Capitalism - Communism - Socialism - Mixed Economy - Canada\*\*\* **Capitalism** Under capitalism, [all or most of the factors of production and distribution]---such as land, factories, railroads, and stores ---[are owned by individuals] (i.e., [not owned by the government]). - They are operated for profit, and business people, not government officials, decide what to produce and how much, what to charge, and how much to pay workers. **Communism** Communism is an [economic and political system in which the state (the government) makes almost all economic decisions and owns almost all of the major factors of production]. - Communists once held power in many nations around the world, is slowly disappearing as an economic form with North Korea and Cuba as one of the few countries still communist. **Socialism** Socialism is an [economic system based on the premise that some, if not most, basic businesses]---such as steel mills, coal mines, and utilities--- [should be owned by the] [government so that profits can be evenly distributed among the people]. **Mixed Economy - Capitalism and Socialism Aspects** - ***Capitalism*** - **Market-Oriented:** Most economic decisions are made through voluntary transactions based on supply and demand. Companies, prices, and production are largely controlled by the market rather than the government. - **Private Enterprise:** A significant portion of the economy is driven by private businesses and industries. Key sectors include real estate, manufacturing, and mining. - ***Socialism*** - **Public Enterprise:** The government plays a crucial role in certain sectors, particularly in providing social welfare programs. This includes healthcare, education, and social security to address social and economic inequalities. - **Regulation:** There is government intervention to regulate industries and protect public interests **Key Economic Indicators Memorize definitions (especially types of unemployment) and key stats** - **GDP**: gross domestic product - the total goods and services produced by the economy. - This is how we measure how well the economy is doing! - A major influence on the growth of GDP is how productive the workforce is ---that is, how much output workers create with a given amount of input. - Another important statistic is the **increase or decrease in productivity**. Productivity is measured by **dividing the total output of goods and services of a given period by the total hours of labour** required to produce them. - An increase in productivity means that a worker can produce more goods and services in the same period of time than before, usually through the use of machinery or other equipment. - Productivity has gone up in recent years because computers and other technology have made the process of production faster and easier for many workers. - The higher productivity is, the lower costs are in producing products, and the lower prices can be. - Since Canada is a service economy, productivity is an issue because firms are so labour-intensive. - **Unemployment rate** - **High of 9.7% in 2020 (COVID)** - **Low of 5.3% in 2022 (after COVID) and currently at 5.4%** - **Frictional unemployment** - refers to those people who have quit work because they didn't like the job, the boss, or the working conditions, and who haven't yet found a new job. - **Structural unemployment** - refers to unemployment caused by the restructuring of firms. - **Cyclical unemployment** - occurs because of a recession or a similar downturn in the business cycle. - **Seasonal unemployment -** occurs when demand varies during the year e.g. fisheries, farming. - **Price indexes**: - **Consumer Price Index (CPI)** - is the index economists use to measure the effects of inflation. - **Inflation** refers to a general rise in the prices of goods and services over time. - **Disinflation** describes a condition where price increases are slowing (i.e., - the inflation rate is declining). - **Deflation** means that prices are actually declining. - **Producer Price Index (PPI)** - **Business cycles** (also known as economic cycles) are the periodic rises and falls that occur in economies over time. - **An economic boom** is just what it sounds like---business is booming. - **Recession** is [ **two or more consecutive quarters of decline in the GDP**]. - **A depression** is a severe **[recession]** usually **[accompanied by deflation].** - Housing starts - Commodity prices - Stock markets **CHAPTER 2 SUMMARY** - Economics the study of how society chooses to employ resources to produce goods and services and distribute them for consumption - Two major branches: - macroeconomics studies - the operation of a nation's economy as a whole - microeconomics studies - the behaviour of people and organizations in particular markets - Capitalism and free markets - Capitalism is an economic system in which all or most of the means of production and distribution are privately owned and operated for profit. The free market is one in which decisions about what to produce and in what quantities are made by the market - Socialism and communism - Socialism based on the premise that some businesses should be owned by the government. - Communism, the government owns almost all major production facilities and - Canada's "mixed" economic system - Part capitalist and part socialist, some businesses are privately owned, but taxes tend to be high to distribute income more evenly among the population - Economic indicators and the business cycle - GDP, unemployment, inflation, productivity - Business cycle: boom, recession, depression, recovery **Chapter 2 Tutorial - World Population Growth & Economic Impact** Global Population - 8 billion people (2022) Key Drivers - Birth Rates, Immigration **Economic Impact - [Increased demand for housing, jobs, healthcare, education]** - **Labour Markets** - Aging Populations: Countries like Japan and many in Europe are experiencing **[workforce shrinkage due to aging populations]**. - This leads to: Fewer workers to support retirees, straining pension systems. - working age population has peaked at 66% and is shrinking - Rising demand for healthcare and **eldercare services**. (**HELL YA BABY!!!)** - Lower productivity and potential economic stagnation. - Labour Market cont. - **Supply of labor** = number of workers available. - **Demand for labor** = the number of workers businesses need. - **Wage rate** is determined by the interaction of labor supply and demand. - **Excess supply** (more workers than jobs) leads to lower wages. - **Excess demand** (more jobs than workers) leads to higher wages  - Canada's Labor force expected to grow from 21.7 million in 2023 to up to 26.8 million by 2041. **[Driven by immigration]** (500,000 immigrants/year reference scenario). - **Consumption** - As populations grow, so does demand for goods and services, driving economic expansion. - Larger populations consume more housing, food, transportation, and technology, **[stimulating businesses in these sectors]**. - A shrinking or stagnant population can result in decreased consumption, slowing economic growth and demand for new products and services. - **Global Migration** - Migration reshapes economies by redistributing labor. Countries receiving - Urbanization---where populations move from rural areas to cities---fosters economic growth by increasing productivity and innovation, but it also requires significant investments in infrastructure and housing. -