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Chapter 2

Chapter 2 The Economic Environment of Business.docx

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Administrative Studies
ADMS 1000
Peter Tsasis

Chapter 2 The Economic Environment of Business  The Economic Environment  In broad terms, the economic environment refers to the conditions of the economic system in which an organization operations.  Composition  Individuals  Business  Factors of Production – the base businesses make economic choices  Natural Resources - land and raw materials  Labour - workers  Capital - buildings, machinery, tools and equipment  Information resources - knowledge workers with specialized education, skills and experience  Entrepreneurship - individuals who starts up businesses  Government  Economic Systems  Capitalism  An economic system based on competition in the marketplace and private ownership of the factors of production (resources).  Also known as market economy / private enterprise system  Private property  Freedom of choice  Profits  Competition  Communism  An economic system established by government ownership of virtually all resources and economic decision making by central government planning.  Also known as command economy  Socialism  An economic system in which the basic industries are owned either by the government itself or by the private sector under strong government control.  Mixed Economies  Economies that combine features of other economic systems. For example, an economy where the government owns certain industries  but others are owned by the private sector.  Economics  The study of how a society uses scarce resources to produce and distribute goods and services.  Microeconomics  The sub-area of economics that focuses on individual parts of the economy such as households or companies.  The Laws of Supply and Demand Demand   The result of the decisions from buyers on whether or not to purchase a good or service.  Supply  The result of the decisions of sellers whether to produce and offer a good or service for sale.  The Law of Supply and Demand  More of a good will be demanded (by society) as the price drops, and more of a good will be supplied (by producers) as the price rises.  Equilibrium  The quantity of a good or service demanded equals the quantity supplied  Macroeconomics  The sub-area of economics that focuses on the economy as a whole by looking at data for large groups of people, companies, or products.  Economic Growth  An increase in a nation’s output of goods & services.  The Business Cycles  Upward and downward changes in the level of economic activity.  Recession  A decline in GDP that lasts for at least two consecutive quarters.  Expansion  Gross Domestic Product (GDP)  The total market value of all final goods and services produced within a nation’s borders each year.  Gross National Product (GNP)
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