Business in A Global Environment

Part 1
Business in a
Global
Environment
Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter 3
Economic
Challenges Facing
Global and
Domestic
Business
Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter Objectives
1. Distinguish between microeconomics and
macroeconomics.
2. Explain the factors that drive demand and supply.
3. Compare the three major types of economic systems.
4. Describe each of the four different types of market
structures in a private enterprise system.
5. Identify and describe the four stages of the business
cycle.
6. Explain how productivity, price-level changes, and
employment levels affect the stability of a nation’s
economy.
7. Discuss how monetary policy and fiscal policy are used to
manage an economy’s performance.
8. Describe the major global economic challenges of the 21st
century.
3-3 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter Overview
 Economics—social science that analyzes
the choices made by people and
governments in allocating scarce resources.
Economics
 Microeconomics—study of small economic
units, such as individual consumers, families,
and businesses.
 Macroeconomics—study of a nation’s
overall economic issues, such as how an
economy maintains and allocates resources
and how government policies affect the
standards of living of its citizens.
Microeconomics:
The Forces of Demand and Supply
 Demand—willingness and ability of buyers to

purchase goods and services.
 Supply—willingness and ability of sellers to

provide goods and services.
Factors Driving Demand
 Each person must choose
Earnings
Between saving and spending
How to allocate spending
Factors Driving Demand
 Demand Curve
Graph of the amount of a product that
buyers will purchase at different prices
Demand curves typically slope downward
and to the right, meaning that lower prices
attract larger purchases
 Demand Curve for Gasoline
 Shift in the Demand Curve for Gasoline
 Expected Shifts in Demand Curves
Factors Driving Supply
 Businesses must chose how to use their
resources to obtain the best profits
 Supply Curve
Shows the relationship between different
prices and the quantities that sellers will
offer for sale, regardless of demand
 Supply Curve for Gasoline
Factors Driving Supply
 Central role in determining the overall supply
of goods and services is played by factors of
production
Natural resources
Human resources
Physical facilities
Entrepreneurship
 Expected Shifts in Supply Curves
How Demand and Supply Interact
 Separate shifts in demand and supply have

obvious effects on product price and
availability
 Equilibrium price
 Law of Supply and Demand
Macroeconomics: Issues for the
Entire Economy
 Capitalism: The Private Enterprise System

and Competition.
Private enterprise system—economic
system in which business success or
failure depends on how well firms match
and counter the offerings of competitors;
also known as capitalism.
Macroeconomics: Issues for the
Entire Economy
 Capitalism: The Private Enterprise System

and Competition
Pure competition
Monopolistic competition
Oligopoly
Monopoly
 Types of Competition
Planned Economies:
Communism and Socialism
 Communism: planned economic system in

which private property is eliminated, goods
are owned in common, and factors of
production and production decisions are
controlled by the state
 Socialism: planned economic system
characterized by government ownership and
operation of all major industries
Mixed Market Economies
 Economic system that combines

characteristics of both planned and market
economies in varying degrees, including the
presence of both government ownership and
private enterprise
Privatization
Evaluating Economic Performance
 Flattening the Business Cycle

Economies flow through various stages of
a business cycle
Recession—cyclical economic contraction

that lasts for six months or longer.
 Four Stages of the Business Cycle
Productivity and the Nation’s Gross
Domestic Product
 Productivity—relationship between the goods

and services produced in a nation each year
and the inputs needed to produce them.
 Gross domestic product—the sum of all
goods and services produced within a nation’s
boundaries each year.
 Gross National Product – the sum of all
goods and services produced by a country’s
own companies globally.
Price-Level Changes
 Inflation—rising prices caused by a
combination of excess consumer demand
and increases in the costs of raw materials,
human resources, and other factors of
production.
Hyperinflation—economic situation
characterized by soaring prices
Price-Level Changes
 Demand-pull inflation
Excess consumer demand
 Cost-push inflation
Generated by rises in costs of factors of
production
 Recent Fears about Deflation
Measuring Price Level Changes
 Consumer Price Index (CPI)—measures the
monthly average change in prices of goods
and services
Market Basket—compilation of the goods
and services most commonly purchased by
urban consumers
 Producers Price Index (PPI)
For Finished Goods
For Intermediate Goods
 Contents of the CPI Market Basket
Employment Levels
 Unemployment rate—
an indicator of a
nation’s economic
health
Top Job Losses by
Industry in the
Recent Recession
 Four Types of Unemployment
Managing the Economy’s Performance
 Monetary Policy—
government actions to
increase or decrease the
money supply and change
banking requirements and
interest rates to influence
banker’s willingness to
make loans.
 Contractionary
 Expansionary
Managing the Economy’s Performance
 Fiscal Policy—
government spending and
taxation decisions
designed to control
inflations, reduce
unemployment, improve
the general welfare of
citizens, and encourage
economic growth.
Fiscal Policy
 Budget—organization’s plan for how it will
raise and spend money during a given period
of time.
 Budget deficit—funding shortfall that results
when the government spends more than the
amount of money it raises through taxes and
fees
 National debt
 Budget surplus
 Balanced budget
 Where Federal Tax Revenues Come from
 How Your Tax Dollars Are Spent
Creating a Long-Term Global Strategy
 Global Economic Challenges

International terrorism
Shift to a global Information economy
Aging of the world’s populations
Improving quality and customer service
Enhancing competitiveness of every
country’s workforce.

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Part 1

 Demand—willingness and ability of buyers to

 Supply—willingness and ability of sellers to

 Separate shifts in demand and supply have

 Capitalism: The Private Enterprise System

 Capitalism: The Private Enterprise System

 Communism: planned economic system in

 Economic system that combines

 Flattening the Business Cycle

Recession—cyclical economic contraction

 Productivity—relationship between the goods

 Recent Fears about Deflation

 Global Economic Challenges

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