MGT 101 Politics & Economics
MGT 101 Politics & Economics 101
Popular in Introduction to Business
Popular in Business, management
This 9 page Class Notes was uploaded by Samantha jose on Saturday February 6, 2016. The Class Notes belongs to 101 at Washington State University taught by Maggie Reed in Spring 2016. Since its upload, it has received 89 views. For similar materials see Introduction to Business in Business, management at Washington State University.
Reviews for MGT 101 Politics & Economics
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 02/06/16
Politics & Economics 2/6/16 12:48 PM Politics • The art or science of government or governing, especially of a political entity, such as a nation, and the administration and control of its internal and external affairs. • The activities or affairs engaged in by a government, politician, or political party. Political Systems • It is a continuum based on the ownership of property: o Capitalism – Socialism – Communism Capitalism • A system of social organization where individuals have the right to own property • Believes in individuals ownership and competition o What’s Good about Capitalism? § Freedom, choice. § You can work wherever, buy whatever, and pretty mush do whatever. § If you’re successful, you can be VERY successful. o What’s Bad about Capitalism? § No “safety net.” § If you’re unsuccessful, you can be VERY unsuccessful. Think about the poor. § Big gap between rich and poor. Socialism • A system of social organization where major resources are held in common • Features government ownership and administration of significant portions of the means of production and distribution of goods • A system of society or group living in which there is less emphasis on private property o What’s Good about Socialism? § Everyone has a share of the benefits (e.g. everyone has access to healthcare and education) § Those who cannot contribute may still participate (disabled, elderly) § A more equal distribution of wealth § Fewer socioeconomic classes o What’s Bad about Socialism? § Higher taxes § Less incentive to work harder § Less competition means reduced reward to be innovative Communism • A system of social organization where all property is held in common; i.e. with ownership being ascribed to every individual in the community • The theory is that everybody pools their resources and labor to evenly/equally distribute everything o What’s Good about Communism? § Security, basic needs met § Everyone would have a job, house, health care, etc. o What’s Bad about Communism? § Lack of choice § Everyone expected to be the same § Little to no reward or incentive for being a better worker § Little to no disincentive or punishment for being a slacker Economics • The social science that deals with the production, distribution, and consumption of goods and services and with the theory and management of economies or economic systems • Human wants may be unlimited; resources are not Economics and/or Economic Systems • The way a nation makes economic choices about how the resources will be used to produce and distribute goods and services Standards used to Distinguish Economic Systems • Who owns the resources? • What decisions-making process is used to allocate resources and products? • What types of incentives guide economic decision makers? Characteristics of an Economic System • What determines what (and how much) is produced? • What determines how it is produced? • What determines how the economy’s output is divided among its people? • What determines the rate of growth the economy is expected to achieve? Economic System • Mechanism, on a continuum between “market” and “planned (or “command”), that allocates resources, goods, and services to people within that system. Market Economy • Decisions on allocation are made by individuals in response to supply and demand. • In a market economy, prices act as signals of scarcity. When the price of something is high, that means its more scarce. Demand for it is high relative to supply. Mixed Economy • A combination of planned/command and market economies in which some industries are privately owned and other are publicly owned or nationalized • Many capitalist political systems have mixed economies o In a Mixed Economy… § People can create their own businesses and make a profit § All businesses pay taxes, which benefit everyone § Government subsidizes such things as… ú Postal Service ú Rail Lines ú Libraries ú Health Care ú Social Programs ú Roads ú Infrastructure (bridges, freeways, etc.) Planned/Command Economies • All resources are collectively owned and directed by the government which decides what and how much to produce • Economic decisions are often made to further the goals of the government • In a command economy, production costs (how much it costs to make an item), are not necessarily reflected in the price of the item. o For example, it might cost $2 to produce a loaf of bread, but the price might be set at $1 in order to ensure that customers are able to afford adequate food. Microeconomics • The study of individual units within an economy (industries, firms, specific products, etc.) Macroeconomics • The study of a nation's economy as a whole Measuring Economic Activity • Gross Domestic Product (GDP) o The value of all goods and services produced within a country, regardless of the nationality of the company producing them • Gross National Product (GNP) o The value of goods and services produced by the companies of a country regardless of where in the world those companies are operating Ways of Reporting GDP & GNP • Both are generally given in $US and may be expressed in terms of absolute (total value) or per capita (literally, per head; total value divided by the number of people in the country’s population) • They may also be shown as Real GDP/GNP, (adjusted for inflation), or as Nominal (unadjusted) figures. Inflation • Inflation means increases in prices over time or a decline in the value or purchasing power of money. • There are TWO main causes: o Cost push - the cost of raw materials and wages increase, and the cots are passed on to consumers o Demand pull - there is more demand for a product than there is supply, and supplies are able to raise prices for extra profit Measuring Economic Activity • Also called the Cost of Living Index • Consumer Price Index (CPI) measures change in the cost of typical wage- earner purchases of goods and services expressed as a percentage of those same goods and services in some prior period. • A key government indicator for measuring the rate of inflation o Cost of living index = CPI • What makes up CPI? o Housing(40.5%) o Food and Beverage (16.4%) o Apparel (4.2%) o Transportation (16.6%) o Medical care (6%) o Recreation (5.9%) o Education & Communication (5.4) o Other (5%) Standard of Living • Not to be confused with Cost of Living, even though they are connected • Standard of Living is the measure of the prosperity and quality of life of a country. • In general, the higher the Standard of Living in a country, the better the life of its citizen The Business Cycle (Economic Cycle) • The periodic but irregular up-and-down movement in economic activity, measured by fluctuations in real GDP and macroeconomic variables. • A complete cycle typically lasts from three to five years, but could last ten years or more. • It is divided into four phases of economic activity usually consisting of: o Recession o Recovery o Growth o Decline • Unemployment inevitably rises during contractions and inflation tends to worsen during expansion • To avoid the inflation and unemployment problems of business cycles, the federal government frequently undertakes various fiscal and monetary policies The Economy • Consumers o Provide labor and capital (investment) to businesses o Purchase goods and services from businesses, providing revenues o Pay taxes to government o Receive services from government • Businesses o Provide jobs, wages, and other income o Produce goods and services for customers o Pay taxes o Receive some government services • Government o Collect taxes from individuals and businesses o Provide services to individuals and businesses o Set “The Rules” The U.S. Federal Budget • Where does the Government Get its Money? o Individual income taxes 48% o Social Security & Payroll taxes 34% o Corporate Taxes 10% o Excise Taxes 4% o Other Sources 4% • Where Does that Money Go? o Social Security 21.7% o National Defense 17.4% o Income Security 14.1% o Medicare 11.3% o Health 10.8% o Net Interest 7.7% o Education & Social Services 3.7% o Transport 2.8% o Veterans Benefits 2.7% o Other 7.9% Factors of Production • Land/Natural Resources • Labor • Capital • Entrepreneurship o The factors of production are blended together to produce goods and services for sale and for consumption Role of Profits • Reward for Risk Taking o Most business owners have many ways to invest their money at various levels of risk. Without the possibility of profit, most business owners would not be prepared to compete for their survival. • Feedback Mechanism that Allocates Resources o Goods that generate a profit will continue to be produced and sold. o Unprofitable goods will be discontinued and discarded. o Businesses are responsive to consumer demand, and they allocate most of their resources to the goods that are the greatest demand. • Saving to Cover Bad Times o Business people must save money during good times to survive business down-turns. o Sometimes businesses must produce a profit before they can save. • Reinvestment to Provide for Growth o A firm’s ability to innovate and grow often requires holding back profits and investing that money in new equipment and buildings to help the business grow. Revenues, Costs, and Profits • Revenues o Revenues are the amounts that a business earns from selling goods and providing services to its customers o They are NOT the same as profit • Cost o The money a business must spend to produce goods and services o The total expenditures made by the business to run the operation **We distinguish between fixed costs and variable costs** Fixed Costs • Rent, advertising, insurance, and office supplies • Things which tend to remain the same regardless of production output Variable Costs • Those costs that vary depending on a company’s production volume; they rise as production increases and fall as production decreases • Can include direct material costs or direct labor costs necessary to complete a certain project Total Cost • Consists of variable costs and fixed costs Economies of Scale • A simple concept that can be demonstrated through an example o Example: Assume you are a small business owner and are considering printing a market brochure. The printer quotes price of $5,000 for 500 brochures, and $10,000 for 2,500 copies § While 500 brochures will cost $10 per brochure, 2,500 will only cost you $4 per brochure • This cost advantage arises because the printer has the same initial set-up cost regardless of whether the number of brochures printed is 500 or 2,5000 • Once these costs are covered, there is only a marginal extra cost for printing each individual brochure. Learning Curve Effects • The more times a task has been performed, the less time is required on each subsequent iteration. The Environment of the Firm Economic Factors Technical Factors Cost of Capital Processes Capital Equipment New Products US Economy Pollution Foreign Economies Capital Equipment Political Factors Social/Cultural Factors Business/Govt. Relations Work Ethic Foreign Relations Consumerism Legislation Social Change Factors in the Environment of the Firm • These provide the business with OPPORTUNITIES for new sales and/or improving profits, or they generate THREATS that can reduce sales and profits. Types of Competition • Pg 70 in Textbook Characteristics Pure Monopolistic Oligopoly Monopoly Competition Competition Number of Many Few to many Few No direct Competitors competition Ease of entry into Easy Somewhat Difficult Regulated by industry by new difficult government firms Similarity of goods Similar Different Similar or No directly or services offered different competing products by competing firms Control over price Non Some Some Considerable in a by individual firms pure monopoly; little in a regulated monopoly Examples Small-scale Local fitness- Boeing Rawlings Sporting farmer in center aircraft Goods, exclusive Indiana supplied of major- league baseballs
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'