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ADM1300 notes for class 4- chapters 1,3 & 4

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Gerard Brathwaite- Sturgeon

Tushman and Nadler Congruence Model Economic Challenges Facing Contemporary Business Economics  The social science that studies the choices people and governments make when dividing up their scarce resources  Looks at what happens when resources are limited o Demand: The willingness and ability of buyers to purchase goods and services o Supply: The willingness and ability of sellers to provide goods and services Microeconomics The Forces of Demand and Supply  The study of small economic units, such as individual consumers, families, and businesses Factors Driving Demand  Demand curve: A graph of the amount of a product that buyers will purchase at different prices o Driven by variety of factors such as competition, price, larger economic events, and consumer preferences  Graph can shift depending on other factors that may not necessarily be about quantity and price o Graph shifted to the right means an increase in quantity and price o As price goes up people by less- negative relation Demand Curve  A graph of the amount of a product that buyers will purchase at different prices Factors Driving Supply  Factors of production play a central role in the overall supply of goods and services  A change in the cost or availability of any of these inputs can shift the entire supply curves and services.  Factors of Production affect pricing and demand Supply Curve  A graph that shows the relationship between different prices and the amount of goods that sellers will offer for sale, regardless of demand  i.e. the less supply, the increase in price How Demand and Supply Interact  Supply and demand curves meet at the equilibrium price. o i.e. price that market is supposed to offer  Buyers and sellers make choices that restore the equilibrium price.  Changes affect both demand and supply. Macroeconomics Issues for the Entire Society  Political, social, and legal conditions differ in every country.  Economies generally classified in one of three categories: o Private enterprise system (capitalism or market economy) o Eg, US o Planned economies: socialism, communism o Russia, Cuba o Mixed market economies (combinations of the two) Capitalism The Private Enterprise System and Competition  Businesses meet needs and demands of consumers and are rewarded through profit.  Government favours a hands-off approach. o i.e. invisible hand- Adam Smith; let market govern itself; sets its own price  Marketplace competition regulates economic life.  Four degrees of competition: o Pure competition: o Monopolistic competition: o Oligopoly: few firms that have most of market share in an industry; ex. Rogers, Telus o Monopoly: One firm owns the most market share in an industry; gov’t ownership of electricity Types of Competition Planned Economies Planned economy: An economic system where business ownership, profits, and resource allocation are shaped by a plan to meet government goals Communism  An economic system where all property is shared equally by the people in a community under the direction of a strong central government  Adopted in early 20th century by many nations, but government-owned monopolies often suffered from inefficiency Socialism  An economic system where the government owns and operates the major industries, such as communications  Some private ownership of industry allowed, such as retail and some manufacturing Mixed Market Economies  Mixed market economy: an economic system that draws from both private enterprise economies and planned economies, to different degrees o The mixture of public and private enterprise can vary widely from country to country.  Privatization: The conversion of government-owned and -operated companies to privately-held businesses o Idea that if government handles something, it would be horrible inefficient Comparison of Alternative Economic Systems Evaluating Economic Performance An economic system should provide a stable business environment and sustained growth as benefits for its citizens.  Business decisions and consumer behaviour differ at various stages of the business cycle: o Prosperity—Unemployment low, consumer confidence/purchasing high, businesses expanding Recession—A cycle of economic contraction that lasts for six months or longer; consumers careful about purchases, businesses slow production/expansion o Depression—Extended recession o Recovery—Declining unemployment, increasing business activity, renewed consumer confidence Productivity and Nation’s Gross Domestic Product  Productivity: The relationship between the number of units produced and the number of human and other production inputs needed to produce them  Gross domestic product (GDP): The sum of all goods and services produced within a country during a specific time period, such as a year  Basically tells us how rich a country is  The Canadian GDP is tracked by Statistics Canada Price-Level Changes  Inflation: Rising prices caused by a combination of excessive consumer demand and higher costs of raw materials, component parts, human resources, and other factors of production  Core inflation rate: The inflation rate after energy prices and food prices are removed o Demand-pull inflation: Excessive consumer demand o Cost-push inflation: Increases in costs of the factors of production o Hyperinflation: An economic situation marked by soaring prices  Inflation devalues money. People can purchase less with what they have (decreased purchasing power).  Deflation: The opposite of inflation, occurs when prices continue to fall o Can cause a weakened economy Measuring Price-Level Changes  Changing prices are tracked by the Consumer Price Index (CPI). o A measurement of the monthly average change in prices of goods and services o Commonly purchased goods and services are priced to compile the data included in the CPI “market basket”  See the Bank of Canada site for the CPI from 2000 to present. Contents of the CPI Market Basket Employment Levels  Unemployment rate: The percentage of total workforce actively seeking work but currently unemployed  Four types Statistics Canada Labour Force Survey Managing the Economy’s Performance  Monetary policy: A government plan to increase or decrease the money supply and to change banking requirements and interest rates to affect bankers’ willingness to make loans o Expansionary monetary policy: A plan to increase the money supply to try to decrease the costs of borrowing  Lower interest rates encourage new investments and increases employment and economic growth. o Restrictive monetary policy: A plan to decrease the money supply to control rising prices, overexpansion, and concerns about overly rapid economic growth  The Bank of Canada formulates and implements monetary policy. o Governments use monetary and fiscal policy to fight unemployment, Fiscal Policy  Fiscal policy: A plan of government spending and taxation decisions designed to control inflation, reduce unemployment, improve the general welfare of citizens, and encourage economic growth  The federal budget is an annual plan for how the government will raise and spend money in the coming year. The primary sources of government funds are taxes, fees, and borrowing.  When the government spends more than the amount of money it raised, there is a budget deficit. When we borrow money to cover the deficit, the national debt is increased.  If the government has more money than it spends, there is a budget surplus. Global Economic Challenges Competing in the World Market Why Nations Trade  Boosts economic growth  Expands markets  More efficient production systems o Local domestic industry becomes more efficient  Less reliance on the economies of home nations  Exports: Domestically produced goods and services sold in other countries  Imports: Foreign goods and services purchased by domestic customers International Sources of Factors of Production  Decisions to operate abroad depend upon availability, price, and quality of: o Labour o Natural resources o Capital o Entrepreneurship  Companies doing business overseas must make strategic decisions. Additional Environmental Factors to which Companies are exposed  New social and cultural practices  Economic and political environments  Legal restrictions  Companies can expand their markets, seek growth opportunities in other nations, make their production and distribution systems more efficient, and reduce their dependence on the economies of their home nations. Size of the International Marketplace  As developing nations expand into the global marketplace, opportunities grow.  Many developing countries have posted h
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