CH : (11)

HOW
ECONOMICS
AFFECTS
BUSINESS

LEARNING objectives
1. Understand the basics of economics.
2. Explain supply and demand.
3. Describe free market capitalism‫ اقتصاد السوق‬and degrees of
competition.
4. Understand the differences between socialism and communism.
5. Discuss the major indicators of economic conditions.

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 Section (1 & 2) : Understanding Economics .
Section Outline:-
A. Basics of Economics.
B. Microeconomics and Macroeconomics.
C. Economics Theorists.
D. Supply and Demand.

A. Basics of Economics.
Economics :- The study of how society chooses to produce goods and services
and distribute them for consumption among various competing groups and
individuals.

B. Microeconomics and Macroeconomics.

Macroeconomics: - The study of the operation of a nation's economy as a

whole. ( macro means something very big in scale )

Microeconomics: - The study of the behavior of people and organization in

particular markets.

Resource Development:- The study of how to increase resources and to

create the conditions that will make better use of those resources .

C. Economics Theorists.

Invisible hand: - A theory developed by Adam Smith say that self-directed‫هى َّجه‬
gain turns into social and economic benefits for all.

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D. Supply and Demand.

Supply: - The quantities of products that manufactures or owners are willing

to sell at different prices at a specific time.

Demand: - The quantity of goods that buyers will purchase at particular price.

THE SUPPLY CURVE AT VARIOUS PRICES :-

The supply curve rises from left to right .
the higher the price of T-shirts (vertical-axis)
. the more will be willing to supply .

THE DEMAND CURVE AT VARIOUS PRICES :-

The demand curve falls from left to right . The
lower price of T-shirts
the higher the quantity demanded.

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THE EQUILIBRIUM POINT :-
The place where quantity demand and supplied meet is called equilibrium
points . In the long-run, the market price will tend toward the equilibrium
point .

Business cycle :- the periodic rise and falls that occur in all economies over
time.

THE BUSINESS /ECONOMIC CYCLE :-

As you can see from this chart through time the economy will experience‫ٌختبر‬
Contraction‫ إنكواش‬and expansion ‫ توذٌذ‬. During good economic times we see
the economy recover after a contraction and result in prosperous conditions.

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 SECTION (3) : FREE MARKET CAPITALISM‫اقتصاد السىق‬
Section Outline:-
 Completion in free Markets

A. Completion in free Markets

 Free Markets: - A system in which decisions‫ قرار‬about

to produce and in what quantities are made by the
market.
Perfect completion:- Exists when there are many sellers in market . no seller
is large enough to dictate‫ أمر‬the price of a product .and the products are
similar.

Monopolistic completion: -(Not to be confused with monopoly ) Exists when

a large number of sellers products that are very similar but are perceived by
buyers as different. The fast food industry is good example .

Oligopoly‫ احتكار القلة‬:- A form of competition in which just a few sellers dominate
a market . The soft drink ,automobiles and tobacco industry is good example

Monopoly: - Occurs when there is only one seller for a product or service.

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 SECTION (4) : SOCIALISM AND COMMUNISM
Section Outline:-
A. Socialism‫ عذل اجتواعى اشتراكٍت‬.
B. Communism‫شوىلى شٍىعٍت‬.
C. The Trend toward Mixed Economies .

A. Socialism )‫اشتراكية( العدل األجتماعى‬.

Socialism :- An economic system based on the premise‫ قام على‬that some .if
not most , basic businesses – such as steel mills‫ هصنع صلب‬, coal mines ‫هنجن فحن‬
‫ حجري‬and utilities ‫خذهاث‬- should be owned by the by the government so that
profits can be evenly‫ بالتساوي‬distributed amonge the people.

The Benefits of Socialism:-

 Social equality
 Income is taken from the wealthier people in the form of taxes and
redistributed to the poorer members through various government
programs.

The Negative Consequences of Socialism :-

A. Brain drain‫ ضٍاع الوفكرٌن نتٍجت الهجرة‬,‫ هجرة األدهغت‬The loss of the best and
brightest people to other countries .

B. Communism ‫شيوعية‬

Communism: - An economic and political system in which the state (the

government) makes almost all economic decisions and owns almost all the
major factors of production.

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C. The Trend toward Mixed Economies

The nations divided historically between CAPITALISM and SOCIALISM

1- Free markets economies(CAPITALISM):- The market largely determines

what goods and services get produced who gets them , and how the economy
grows .

2- Command economies ً‫) االقتصاد الشوىل‬Communism) :- the government largely

decides what goods and services get produced . who gets them and how the
economy grows .

3- Mixed economies: - Economies where some allocation of resources is

made by the market and some by the government.

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 Capitalism Socialism Communism Mixed Economy
‫رأس مالى‬ ‫عدل أجتماعى‬ ‫شمولى‬ ‫مختلط‬

-Private -Public - Public - Private

ownership & ownership ownership of ownership with
Social and Free trade Of the major all government
Economic -Some businesses. regulation.
Goals private of
smaller.

-Much -Incentives in Very little -Similar to

Incentive private capitalism
except
Motivation of enterprises
Workers owned by
government

-Complete -Some -Total market Trade

freedom market are control Protection
Control over controlled by
Market government
and some are
free
- A wide -Varies from -Very little -A wide variety
variety country to
Choices in the
other
market

-Freedom of Government -Very little -Some

speech , may restrict restrictions
Social religion, job job
Freedoms movement

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 SECTION (5) : ECONOMIC INDICATORS
Section Outline:-

A. Gross Domestic Productً‫ الناتج الوحلً اإلجوال‬.

B. Unemployment‫ بطالت‬.
C. Price Indexes.
D. Fiscalً‫ هال‬and Monetary Policy‫ السٍاست النقذٌت لبلذ أو للبنك الوركزي‬.

A. Gross Domestic Product ‫الناتج المحلي اإلجمالي‬

Gross Domestic Product (GDP) :- The total value of the final goods and
services produced in a country in a given year .

Gross national Product (GNP) :- Similar to GDP, but only counts Americans
producing products in the county not other foreign nationals .

B. Unemployment ‫ بطالة‬:-

Unemployment Rate :- The number of civilians at least 16 years old who are
unemployed and who have tried to find a job within the prior four weeks.

C. Price Indexes:-
Price Indexes: - Indexes of the changes in the prices of goods and services
based on the prices of the same goods and services from a previous period.

Inflation: - A general rise in the prices of goods and services over time.

Hyperinflation: - When inflation increases beyond 50 percent in a given time

period .

Stagflationً‫ الركىد التضخو‬:- When unemployment rates and inflation rates are high.

Deflationً‫ انكواش هال‬:- Prices are actually declining .It occurs when countries
produce so many goods that people cannot afford to buy them all.

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Consumer Price Index (CPI) :- Consists of monthly statistics that measure the
pace of inflation . It tracks the price of 400 goods.

Producer Price Index (PPI) :- Same to (CPI) but measure prices in wholesale
level

D. Fiscal ‫ مالي‬and Monetary Policy

Fiscal ‫ مالي‬and Monetary Policy: - The federal government's efforts to keep the
economy stable by increasing or decreasing taxes or government spending.

National Debt‫ الذٌن العام‬:- The sum of government deficits‫ عجز‬over time .

Recession‫ فتىر إقتصادي‬,‫ ركىد‬:- When GDP falls for two consecutive‫ هتعاقب‬quarters.

Depression ‫ كآبت‬,‫كساد إقتصادي‬:- A services recession , when the GDP falls for
several quarters and recovery is long time off .

Recovery: - An improvement in the economy, making the end of a recession

or decline.

Monetary Policy: - The management of the money supply and interest rates

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