MIE 201, Chapter 2 Book Notes
MIE 201, Chapter 2 Book Notes MIE 201
Popular in Intro to Management
Popular in Management
This 8 page Class Notes was uploaded by Jenna Loehrer on Wednesday September 21, 2016. The Class Notes belongs to MIE 201 at North Carolina State University taught by M.K. Ward in Fall 2016. Since its upload, it has received 3 views. For similar materials see Intro to Management in Management at North Carolina State University.
Reviews for MIE 201, Chapter 2 Book Notes
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: 09/21/16
Understanding Basic Economics: Chapter 2 Notes Learning Objectives 1. Define economics, and explain why scarcity is central to economic decision making. a. Economics: study of how individuals, companies, and governments use scarce resources to produce the goods and services that meet a society’s needs. b. Scarcity is a crucial concept in economics because it creates competition for resources and forces everyone to make tradeoffs. c. Key terms: economy, economics, microeconomics, macroeconomics, natural resources, human resources, capital, entrepreneurship, knowledge, scarcity, opportunity cost 2. Differentiate among the major types of economic systems. a. Two basic types of economic systems: i. Freemarket systems: individuals and companies are largely free to make economic decisions ii. Planned systems: government administrators make all major decisions b. Capitalism and Private Enterprise are often used to describe freemarket systems c. Communism most extreme type of planned system; Socialism lies in the middle between capitalism and communism and generally refers to government ownership of fundamental services d. US Economy (like almost all others) blends elements of freemarket capitalism and government control 3. Explain the interaction between supply and demand. a. Demand: amount of a good or service that customers will buy at a given time at various prices; can be shown on a demand curve i. Can shift as market condition change b. Supply: amount of a good or service that producers will provide on a particular date at various prices; can be shown on a supply curve i. Can also shift in response to market forces c. Demand and supply affect price by: i. When price goes up, quantity demanded goes down ii. When price goes down, quantity demanded goes up d. Equilibrium Point: point at which quantity supplied equals quantity demanded 4. Identify four macroeconomic issues that are essential to understanding the behavior and to understanding the behavior of the economy. a. Competition in a freemarket system occurs on a spectrum from pure competition to monopolies i. Most competition in a freemarket system is monopolistic competition 1. Number of sellers is large enough that none can dominate the market and products can be distinguished in some way b. Business cycles Economy expands and contracts i. Do not follow a regular cyclical pattern c. Unemployment is important because it affects families, individuals, and economies as a whole Understanding Basic Economics: Chapter 2 Notes i. Frictional Unemployment: normal inflow and outflow of workers as people change jobs ii. Structural Unemployment: skills workers possess not aligning with skills employers need iii. Cyclical Unemployment: reduced labor needs during economic contraction iv. Seasonal Unemployment: change in flow of labor demand in certain industries over course of the year d. Inflation affects every aspect of economic activity because of the effects it has on prices of goods, services, and labor 5. Outline the debate over deregulation, and identify four key roles that government play in the economy. a. Increased regulation is useful because companies can’t always be counted on to protect the stakeholder’s interests and the market can’t be relied on to prevent/ punish abuses or failures b. Four key roles government plays in economy: i. Protecting stakeholders ii. Fostering competition iii. Encouraging innovation and economic development iv. Stabilizing and stimulating the economy 6. Identify the major ways of measuring economic activity. What is This Thing Called Economy? Economy: sum total of all of the economic activity within a given region ● Constantly in motion Economics: study of how a society uses its scarce resources to produce and distribute goods ● Microeconomics: study of how consumers, businesses, and industries collectively determine the quantity of goods and services demanded and supplied at different prices ● Macroeconomics: study of “bigpicture” issues in an economy, including competitive behavior among firms, the effect of government policies, and overall resource allocation issues Factors of Production ● Each society must choose how to use its economic resources (or factors of production) ○ Natural Resources: land, forests, minerals, water, and other tangible assets usable in their natural state ○ Human Resources: all the people who work in an organization or on its behalf ○ Capital: the funds that finance the operations of a business as well as the physical, humanmade elements used to produces good and services, such as factories and computers ○ Entrepreneurship: combination of innovation, initiative, and willingness to take the risks required to create and operate new businesses ○ Knowledge: expertise gained through experience or association Understanding Basic Economics: Chapter 2 Notes ● Traditionally, a business or country was considered to have advantage if location had Natural Resources, Human Resources, Capital, and Entrepreneurship ● Today, intellectual assets (knowledge) is much more valuable Economic Impact of Scarcity Scarcity: a condition of any productive resource that has a finite supply ● Two effects of Scarcity: ○ Creates competition for resources ■ Every level of economy competes for resources they require ○ Forces tradeoffs on the part of every participant in the economy ■ Means companies, governments, and consumers have to give up one thing for something else ● Opportunity Cost: value of the most appealing alternative not chosen ○ Way to measure the value of what you have up when you pursued a different opportunity Economic Systems Economic Systems: policies that define a society’s particular economic structure; the rules by which a society allocates economic resources ● Categorized as: ○ Free Market System: economic system in which decisions about what to produce and in what quantities are decided by the market’s buyers and sellers ■ Have the chance to succeed or fail by their own efforts ○ Capitalism (p rivate enterprise): economic system based on economic freedom and competition ■ Private parties (individuals, partnerships, or corporations) own and operate majority of businesses and where competition, supply, and demand determine which goods and services are produced ● Communism: ○ State ownership of all major productive resources ○ Absence of economic classes ○ Few opportunities for entrepreneurship ● Socialism: ○ State ownership of certain productive resources ○ Managed efforts to minimize dramatic differences between economic classes ○ Opportunities for entrepreneurship, with varying degrees of restrictions ● Capitalism: ○ Private ownership of most productive resources ○ Few efforts to minimize differences between economic classes ○ Government policies actively support entrepreneurship ■ USA is mixed economy/ mixed capitalism Planned Systems ● Planned System: economic system in which the government controls most of the factors of production and regulations their allocation ● Socialism: economic system characterized by public ownership and operation of key industries combined with private ownership and operation of lessvital industries ○ Government ownership focused on industries considered vital to common welfare ○ Private ownership is permitted in other industries Nationalization and Privatization ● Nationalizing: government’s takeover of selected companies or industries ○ Towards Socialism ● Privatizing: turning over services once performed by the government to private business ○ Towards Capitalism Forces of Demand and Supply ● Demand: buyer’s willingness and ability to purchase products at various price points ○ Refers to the behavior of buyers ● Supply: specific quantity of a product that a seller is able and willing to provide at various prices ○ Refers to the behavior of sellers ● Supply and demand are dynamic and are affected by a variety of internal and external factors Understanding Demand ● Demand Curve: graph of quantities of a product that buyers will purchase at various prices ● Effects of major factors that can cause overall demand to increase/ decrease (airline example used): ○ Customer income ○ Customer preferences towards product (fear of airline safety) ○ Price of substitute products (products that can be purchases instead of air travel, such as train tickets, driving a car, web conferencing) ○ Price of c ○ Marketing expenditures (advertising and other promotional efforts) ○ Customer expectations about future prices and their own financial wellbeing ● Example: If economy is down, businesses and customers will have less money to spend and overall demand for air travel will decrease Understanding Supply ● Supply Curve: graph of the quantities of a product that sellers will offer for sale, regardless of demand, at various prices ● Movement traditionally slopes upward ● Effects of major factors that can cause overall supply to increase/ decrease: Understanding How Demand and Supply Interact ● Equilibrium Point: point at which quantity supplied equals quantity demanded The Macro View: Understanding How an Economy Operates Competition in a FreeMarket System Competition: rivalry among businesses for the same customers ● Varies widely by industry, product category, and geography Monopoly: situation in which one company dominates a market to the degree that it can control prices Pure Competition: situation in which so many buyers and sellers exist that no single buyer or seller can individually influence market prices ● Characteristics: ● Price Competition: ● Buyer’s choices: Extensive Monopolistic Competition: ● Characteristics: ● Price Competition: ● Buyers’ choices: Extensive Oligopoly: ● Characteristics: ● Price Competition: Understanding Basic Economics: Chapter 2 Notes ● Buyers’ choices: Limited Pure Monopoly: ● Characteristics: ○ Only one supplier in a given market ○ Monopoly achieved without government intervention, by innovation, specialization, exclusive contracts, or a simple lack of competitors ○ Products are unique, with no direct replacements available ○ Barriers to entry are extremely high, making entering market difficult or impossible ● Price Competition: ○ Suppliers can charge as much as they want, at least until people stop buying ● Buyers’ choices: None Regulated Monopoly: ● Characteristics: ○ One one supplier in a given market ○ Monopoly granted by government mandate, such as license to provide cable TV and internet service ○ No product competition allowed ● Price Competition: ○ Prices are set by government mandate ● Buyers’ choices: None Business Cycles: fluctuations in the rate of growth that an economy experiences over a period of several years Recession: period during which national income, unemployment, and production all fall; defined as at least six months of decline in GDP Unemployment Rate: portion of the labor force (everyone over 16 who has or is looking for a job) currently without a job Inflation: economic condition in which prices rise steadily throughout the economy Deflation: economic condition in which prices fall steadily throughout the economy Types of Unemployment ● Frictional Unemployment: ○ “Natural” flow of workers ■ Ex: someone leaves job without lining up another job ○ Always some level of frictional unemployment in economy ● Structural Unemployment ○ Mismatch between workers’ skills and current employers needs ○ Workers can’t find jobs that match their qualifications and vice versa ● Cyclical Unemployment: ○ Caused by economic fluctuations Understanding Basic Economics: Chapter 2 Notes ○ Occurs when demand for goods and services drops, businesses reduce production, which then requires less workers ○ Increasing number of people who want to work can’t find jobs ○ During catastrophic depressions, can run as high as 2025% ● Seasonal Unemployment ○ Predictable increases and decreases in the need for workers in industries with seasonal fluctuations in customer demand ○ Common in agriculture, leisure and entertainment, retailing and accounting services Stabilizing and Stimulating Economy: ● Monetary Policy: government policy and actions taken by the Federal Reserve Board to regulation the nation’s money supply ○ Adjusting the amount of “spendable money” in economy by increasing or decreasing interest rates ● Fiscal Policy: use of government revenue collection and spending to influence the business cycle ○ On revenue side governments can adjust revenue they bring in by changes taxes rates ■ When government decreases income tax rate, goal is that businesses and consumers will spend and invest money they save ○ On expenditures side government can increase their purchases to possibly create new products or programs with goal of expanding employment opportunities and increasing demand for goods and services Economic Measures and Monitors ● Economic Indicators: statistics that measure the performance of an economy ○ Leading indicators: suggest changes that may happen in the future ○ Lagging indicators: provide confirmation that something has occurred in the past ● Example: Housing starts show increases through
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'