LESSON 1.

MARKET
ECONOMIES

GOALS
 Compare three types of economies
 Describe and explain the characteristics of
a market economy

© 2011 South-Western | Cengage Learning

INTRO TO BUSINESS, 2e LESSON
1.1

Economic Systems
 Our businesses operate in a global
marketplace and deal with a variety of
economic systems that influence each
other
 Countries take different approaches in
how their economies operate, but each
must provide answers to the same basic
economic questions
© 2011 South-Western | Cengage Learning SLIDE 2
INTRO TO BUSINESS, 2e LESSON
1.1

Economic Problem
 Scarcity is the conflict between unlimited
wants and limited resources.
 In order to decide how to use its scarce
resources, a country must answer three key
economic questions.
 The answers to these questions depend in
large part on the society’s economic system.

© 2011 South-Western | Cengage Learning SLIDE 3

INTRO TO BUSINESS, 2e LESSON
1.1

Key Economic Questions

1. What to produce?
 Should resources be used to provide consumer
goods, industrial goods, or military goods?
2. How should things be produced?
 What kinds of industries and equipment should be
used?
3. For whom should they be produced?
 Which of its citizens should benefit most from what is
produced?

© 2011 South-Western | Cengage Learning SLIDE 4

INTRO TO BUSINESS, 2e LESSON
1.1

Types of Economic Systems

 Traditional Economy
 Command Economy
 Market Economy
 In a market economy, businesses and individuals
are free to make their own decisions as they buy and
sell in the marketplace.
 Capitalism means that economic resources are
privately owned by individuals rather than by the
government.

© 2011 South-Western | Cengage Learning SLIDE 5

INTRO TO BUSINESS, 2e LESSON
1.1

Characteristics of Market
Economies
 Private enterprise
 Private property
 Profit
 Competition

© 2011 South-Western | Cengage Learning SLIDE 6

INTRO TO BUSINESS, 2e LESSON
1.1

Private Enterprise
 An individual’s right to own a business,
select a market to enter, and produce with
limited government direction is called
private enterprise.

© 2011 South-Western | Cengage Learning SLIDE 7

INTRO TO BUSINESS, 2e LESSON
1.1

Private Property
 Your right to private property means that
you can own, use, and dispose of things
of value.

© 2011 South-Western | Cengage Learning SLIDE 8

INTRO TO BUSINESS, 2e LESSON
1.1

Profit
 Profit is the amount of money left over
when subtracting the expenses of
operating a business from its income—it
is a reward for taking risks.

© 2011 South-Western | Cengage Learning SLIDE 9

INTRO TO BUSINESS, 2e LESSON
1.1

Competition
 Competition is the rivalry among
businesses to sell their products and
services to consumers.

© 2011 South-Western | Cengage Learning SLIDE 10

LESSON 1.2

MAKE DECISIONS

GOALS
 Explain how an economy meets its needs
and wants
 Describe the six-step decision-making
process

© 2011 South-Western | Cengage Learning

INTRO TO BUSINESS, 2e LESSON
1.2

Providing Needs and Wants

 The needs and wants of a society are met
through the production of goods and
services.
 This production requires the use of
economic resources.

© 2011 South-Western | Cengage Learning SLIDE 12

INTRO TO BUSINESS, 2e LESSON
1.2

Needs and Wants

 Needs are things that are required in
order to live.
 Wants are things that are not necessary
for survival, but add comfort and pleasure
to our lives.

© 2011 South-Western | Cengage Learning SLIDE 13

INTRO TO BUSINESS, 2e LESSON
1.2

Goods and Services

 Goods are things you can see and touch.
 Services are activities that are consumed
at the same time they are produced.

© 2011 South-Western | Cengage Learning SLIDE 14

INTRO TO BUSINESS, 2e LESSON
1.2

Economic Resources
 The means through which goods and
services are produced are called
economic resources or factors of
production.
 There are three kinds of economic
resources:
 Natural resources
 Human resources
 Capital resources
© 2011 South-Western | Cengage Learning SLIDE 15
INTRO TO BUSINESS, 2e LESSON
1.2

Economic Decision Making

 Economic decision making is the process
of deciding among several alternative
wants to determine the one most desired.

© 2011 South-Western | Cengage Learning SLIDE 16

INTRO TO BUSINESS, 2e LESSON
1.2

The Decision-Making Process

GOOD
6 DECISION
5 Review Your Decision
4 Act on Your Choice
3 Choose One
2 Evaluate Choices
1 Identify Choices
Define Problem

PROBLEM
© 2011 South-Western | Cengage Learning SLIDE 17
LESSON 1.3

HEALTHY
ECONOMIES

GOALS
 Discuss three measurements of an
economy's health
 Name and describe the four phases of a
business cycle

© 2011 South-Western | Cengage Learning

INTRO TO BUSINESS, 2e LESSON
1.3

Economic Measurements
 Three measurements used in looking at
the health of an economy are:
 Gross domestic product (GDP)
 Labor productivity
 Inflation and deflation

© 2011 South-Western | Cengage Learning SLIDE 19

INTRO TO BUSINESS, 2e LESSON
1.3

Gross Domestic Product (GDP)

 Gross domestic product (GDP) is the
total dollar value of all goods and services
produced in an economy in one year.
 It is a basic measurement of how an
economy is doing.

© 2011 South-Western | Cengage Learning SLIDE 20

INTRO TO BUSINESS, 2e LESSON
1.3

GDP Includes Four Major

Categories
1. Consumer spending for food, clothing, and
housing
2. Business spending for buildings, equipment,
and supplies
3. Government spending to pay employees and to
buy supplies and other goods and services
4. The exports of a country less the imports of the
country

© 2011 South-Western | Cengage Learning SLIDE 21

INTRO TO BUSINESS, 2e LESSON
1.3

Labor Productivity
 The measurement of the number of items
produced per worker is called productivity.
 In a simple model, productivity is computed by
dividing the output (the number of units
produced) by the input (the number of hours
worked).
Number of units produced (output)
Productivity =
Number of hours worked (input)

© 2011 South-Western | Cengage Learning SLIDE 22

INTRO TO BUSINESS, 2e LESSON
1.3

Inflation and Deflation

 A sustained increase in the general level
of prices for goods and services is called
inflation.
 Deflation is a sustained decrease in the
general level of prices for goods and
services.

© 2011 South-Western | Cengage Learning SLIDE 23

INTRO TO BUSINESS, 2e LESSON
1.3

The Business Cycle

 The movement of the economy from one
condition to another and back again is called a
business cycle.
 Business cycles have four phases:
 Prosperity
 Recession
 Depression
 Recovery

© 2011 South-Western | Cengage Learning SLIDE 24

INTRO TO BUSINESS, 2e LESSON
1.3

Prosperity
 Prosperity is the phase where most people who
want to work are employed and businesses
produce goods and services in record numbers.
 Wages are good.
 The demand for goods and services is high.
 Prosperity does not go on forever.

© 2011 South-Western | Cengage Learning SLIDE 25

INTRO TO BUSINESS, 2e LESSON
1.3

Recession
 Recession is a phase of the business cycle
where demand for goods and services begins
to decrease, production decreases,
unemployment begins to increase, and GDP
growth slows down.
 A decrease in the use of economic resources
and a lower demand for goods and services
signal this phase of the business cycle.

© 2011 South-Western | Cengage Learning SLIDE 26

INTRO TO BUSINESS, 2e LESSON
1.3

Depression
 Depression is a phase of the business cycle
marked by a prolonged period of
unemployment, weak sales of goods and
services, and business failures.
 GDP falls rapidly during a depression.
 During the Great Depression of the early 1930s,
the unemployment rate reached 25 percent.

© 2011 South-Western | Cengage Learning SLIDE 27

INTRO TO BUSINESS, 2e LESSON
1.3

Recovery
 Recovery is the phase in which unemployment
begins to decrease, demand for goods and
services begins to increase, and GDP begins to
rise again.
 Recovery leads an economy into the most-
welcome business cycle, prosperity.

© 2011 South-Western | Cengage Learning SLIDE 28

LESSON 1.4

PARTICIPATE IN AN
ECONOMY

GOALS
 Define three economic roles and state how
they affect supply and demand
 Discuss standard of living and quality of life

© 2011 South-Western | Cengage Learning

INTRO TO BUSINESS, 2e LESSON
1.4

Economic Roles
 Citizen
 a legally recognized subject or national of a
state or commonwealth, either native or
naturalized
 Worker
 an employee in an organization
 Consumer
 a person who purchases goods and services for
personal use
© 2011 South-Western | Cengage Learning SLIDE 30
INTRO TO BUSINESS, 2e LESSON
1.4

Supply and Demand

 Demand is the relationship between the
amount of a good or service that
consumers are willing and able to buy
and the price of the good or service.
 Supply is the amount of a good or
service that businesses are willing and
able to provide and the price of the good
or service.
© 2011 South-Western | Cengage Learning SLIDE 31
INTRO TO BUSINESS, 2e LESSON
1.4

Supply and Demand Effect on

Price
 Demand
 As the demand for a good or service increases, the
price tends to go up.
 As demand begins to fall, the price generally goes
down.
 Supply
 When a product is in short supply, prices tend to
increase if the demand stays the same.

© 2011 South-Western | Cengage Learning SLIDE 32

INTRO TO BUSINESS, 2e LESSON
1.4

Your Economic Well-Being

 Standard of living refers to the way you
live as measured by the kind and quantity
of goods and services you can afford.
 Quality of life is the satisfaction and
enjoyment that you get from your life.

© 2011 South-Western | Cengage Learning SLIDE 33