Chapter 2 - How Economic Issues Affect Buisness
business success is due to an economic and social climate that allows businesses to operate
foreigners investors like Canada because we have a stable economic and political environment
(risks come from unpredictable governments, massive corruption, and weak laws)
Economics is the study of how society chooses to employ resources to produce goods and
services and distribute them for consumption among various competing groups and individuals.
resources (land, labour, capital goods, entrepreneurship and knowledge) also known as factors
Businesses may contribute to an economic system by inventing products that greatly increase
available resources. For example, businesses may discover new energy sources, new ways of
growing food, and new ways of creating needed goods and services.
macroeconomics looks at the operation of a nation's economy as a whole
ex. how many jobs exist in the whole economy
microeconomics looks at the behaviour of people and organizations in particular markets.
ex. how many people will be hired in a particular industry or a particular region of the
economics - allocation of scarce resources.
there's not enough resources to maintain the peace and prosperity in the world merely
by dividing the resources we have amongst the existing nations
resource development is the study of how to increase and to create the conditions that
will make better use of them
Give a man a fish and you feed him for a day, but teach a man to fish and you feed him for a lifetime.”
You can add to that: “Teach a person to start a fish farm, and he or she will be able to feed a village for a
lifetime.” The secret to economic development is contained in this last statement. Business owners
provide jobs and economic growth for their employees and communities as well as for themselves.
Scottish economist Adam Smith envisioned creating more resources so that everyone could
father of modern economics
According to Smith, as long as farmers, labourers, and business people (entrepreneurs)
could see economic rewards for their efforts (i.e., receive enough money in the form of profits to
support their families), they would work long hours and work hard.
Yet as people try to improve their own situation in life, Smith said, their efforts serve as
an “invisible hand” that helps the economy grow and prosper through the production of needed
goods, services, and ideas. Thus, the invisible hand turns self-directed gain into social and
economic benefits for all.
Numerous forces can hinder economic growth and development. (ex. corruption) The economic system that has led to wealth creation in much of the world is known as
operated for profit, and business people, not government officials
decide what to produce and how much, what to charge, and how much to pay workers
decide whether to produce goods in their own countries or have them made in other
countries. popular term used to describe free-market economies.
no country is purely capitalist.
gov'ts often get involved in issued such as determining minimum wage and subsidizing
How free markets work
what to produce and in what quantities are made by the market—that is, by buyers and
sellers negotiating prices for goods and services.
Consumers send signals to tell producers what to make, how many, in what colours, and
so on. “Free” markets work not just from the interaction of buyers and sellers, but also from
government signals (e.g., laws and regulations, taxes, warnings, advice, etc.).
How prices are determined
determined by buyers and sellers negotiating in the marketplace.
A seller may want to receive $50 for a T-shirt, but the quantity demanded at that price
may be quite low. If the seller lowers the price, the quantity demanded is likely to increase.
supply and demand modules
Supply refers to the quantity of products that manufacturers or owners are willing to sell at
different prices at a specific time.
the amount supplied will increase as the price increases because sellers can make more
money with a higher price.
the supply curve indicates the relationship between the price and the quantity supplied.
All things being equal, the higher the price, the more the vendor will be willing to supply.
rises from left to right
The demand curve falls from left to right.
The lower the price of T-shirts, the higher the quantity demanded
Sellers prefer a high price, and buyers prefer a low price. If you were to lay one of the two
graphs on top of the other, the supply curve and the demand curve would cross. At that crossing
point, the quantity demanded and the quantity supplied are equal.
That crossing point is known as the equilibrium price. In the long run, that price would
become the market price. Market price, then, is determined by supply and demand. Supporters of a free market would argue that because supply and demand interactions
determine prices, there is no need for government involvement or government planning. If
surpluses develop (i.e., if quantity supplied exceeds quantity demanded), a signal is sent to
sellers to lower the price. If shortages develop (i.e., if quantity supplied is less than quantity
demanded), a signal is sent to sellers to increase the price. Eventually, supply will again equal
demand if nothing interferes with market forces.
Perfect competition exists when there are many sellers in a market and no seller is large
enough to dictate the price of a product. Under perfect competition, sellers produce products
that appear to be identical.
Agricultural products (e.g., apples, corn, potatoes) are often considered to be the closest
examples of such products.
Monopolistic competition exists when a large number of sellers produce products that are very
similar but are perceived by buyers as different (e.g., hot dogs, candy, and T-shirts). Under
monopolistic competition, product differentiation (the creation of real or perceived product
differences) is a key to success.
The fast-food industry, in which there are often promotional battles between hamburger
restaurants, offers a good example of monopolistic competition.
An oligopoly occurs when a few sellers dominate a market. Oligopolies exist in industries that
produce products in the areas of oil and gas, tobacco, automobiles, aluminum, and aircraft.
One reason some industries remain in the hands of a few sellers is that the initial
investment required to enter the business is tremendous.
In an oligopoly, prices for products from different companies tend to be