Full note set with Examples and Questions: http://www.executioncycle.lkblog.com/2012/06/my-business-economics-and-financial.html

Introduction to Economics

Economics – the study of how individuals and societies make decisions about ways to use scarce

resources to fulfill wants and needs.

Economic Questions

Society (we) must figure out,

WHAT to produce (make)

HOW MUCH to produce (quantity)

HOW to produce it (manufacture)

FOR WHOM to Produce (who gets what)

WHO gets to make these decisions?

Resources - The things used to make other goods.

Scarcity (The problem): unlimited wants and needs but limited resources

Because ALL resources, goods, and services are limited – we must make choices!

Microeconomics Macroeconomics

Behaviors of individual economic units like consumers, producers, landowners, families, etc. How and why do they make the decisions they make?

Analyzes how the entire national economy performs. It analyzes unemployment, inflation, price levels, interest rates (many things we take as given in microeconomics).

Industrial Economics

Industrial Economics is the study of firms, industries markets and their relationship with society

When analyzing decision making at the levels of the individual firm and industry, Industrial Economics

helps us understand such issues as,

the levels at which capacity, output and prices are set;

the extent that products are differentiated from each other;

how much firms invest in research and development (R&D)

how and why firms advertise

Opportunity Cost = the Value of the Next Best Choice

Full note set with Examples and Questions: http://www.executioncycle.lkblog.com/2012/06/my-business-economics-and-financial.html

Four Factors of Production

1. LAND – Natural Resources

Water, natural gas, oil, trees (all the stuff we find on, in, and under the land)

2. LABOR – Physical and Intellectual

Labor is manpower

3. CAPITAL - Tools, Machinery, Factories

The things we use to make things

Human capital is brainpower, ideas, innovation

4. ENTREPRENEURSHIP – Investment $$$

Investing time, natural resources, labor and capital are all risks associated with

production

THREE parts to the Production Process

1. Factors of Production – what we need to make goods and services

2. Producer – company that makes goods and/or delivers services

3. Consumer – people who buy goods and services

Production Process

Full note set with Examples and Questions: http://www.executioncycle.lkblog.com/2012/06/my-business-economics-and-financial.html

Capital Goods and Consumer Goods

Capital Goods: are used to make other goods

Consumer Goods: final products that are purchased directly by the consumer

Changes in production

Division of Labor – different people perform different jobs to achieve greater efficiency

(assembly line).

Consumption – how much we buy (Consumer Sovereignty)

Conditions that make economic models valid

Ceteris paribus assumption (Ceteris paribus means all else held constant. If you do not hold all other

factors constant then you cannot determine what affected the change.)

Association vs. causation - The fact that one event follows another does not necessarily mean that the

first event caused the second event

What makes economic predictions to be contradictory and corrective actions to be ineffective?

Economic issues are controversial (complex and several indicator)

Time delay – information lag, policy determination, policy effectiveness lag

Positive economics – “If…then” – economists may disagree about the occurrence of the first

event

Normative economics – predictions based on values, preconceptions

Comparative Economics

Command Economies

Def: Economic questions answered by the government

Very little economic choice

No private ownership

Communism

Old Soviet Union, old Communist China, Cuba and North Korea

Communism

Government should control economy and distribute goods and services to the people

Karl Marx - Founder of revolutionary socialism and communism

Full note set with Examples and Questions: http://www.executioncycle.lkblog.com/2012/06/my-business-economics-and-financial.html

Free Market (Capitalist) Economies

Economic questions answered by producers and consumers

Limited government involvement

Private property rights

Wide variety of choices and products

Adam Smith - Explained the workings of the free market within capitalist economies

Government stays out of business practices “hands off” to let the market place determine production,

consumption and distribution. Individual freedom and choice emphasized.

Principles of Capitalism

Competition – more businesses means lower prices and higher quality products for consumers

to buy.

Voluntary Exchange – businesses and consumers MUST be free to buy or sell what and when

they want.

Private Property – Individuals and businesses MUST be able to get the benefits of owning their

OWN property. Government does not control it.

Consumer Sovereignty – consumers get to make free choices about what to buy and this helps

drive production (Demand drives Supply).

Profit Motive – people want to make or save $$$$. Their “Self Interest” motivates Capitalism

Social Safety Net – “Mixed Economy” idea that says the government should NOT allow people

to suffer in economic crisis (natural part of Capitalism’s “Business Cycle”), but provide security

instead – Social Security, Unemployment Insurance, etc.

Mixed Economy/Socialism

Government involvement and ownership and control of property, of decision making, and

companies.

Government control of business

Social “safety net” for people

Socialism

Common in Europe, Latin America, and Africa

John Maynard Keynes - Government should intervene in economic emergencies through tax and

spending (Fiscal Policy) and changing the money supply (Monetary Policy). This is done to smooth out

the business cycle (expansion and recession) and keep inflation low.

Full note set with Examples and Questions: http://www.executioncycle.lkblog.com/2012/06/my-business-economics-and-financial.html

When Production Decreases

Downsizing – Lying off employees to save costs.

Outsourcing – sending jobs and manufacturing overseas or contracting to outside companies to

save money.

Bankruptcy – government allows business to restructure its debt, but now all profits go to

paying off debt rather than to the owners/investors.

Out of Business – lose all your business, money, and profits.

How does ‘Labor’ protect itself?

Labor Unions: organization of workers who have banded together to achieve common goals

Wage protection

Workplace safety

Benefits

Job protection

Collective Bargaining - Representatives of the Union and the company negotiate a contract for the

workers; usually they rely on compromise

Strikes - When an agreement cannot be reached, workers stop working to try to force the hand of the

company