Introduction to Business
Module 2:
Economic Fundamentals
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Affirmations
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Understanding Economics
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What is economics?
Economics is the study of how humans make decisions in the face of scarcity.
Scarcity exists when human wants for goods and services exceed the available supply. People make decisions in their own self-interest, weighing benefits and costs.
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Opportunity Cost
Opportunity cost is what must be given up to obtain something that’s desired.
A fundamental principle of economics is that every choice has an opportunity cost.
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Microeconomics vs. Macroeconomics
Microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses.
In microeconomics households make decisions about how to spend their budgets. Individuals make decisions about whether to work, and how much money they should save for the future.
Macroeconomics studies the economy as a whole. It focuses on goals such as growth in the standard of living, low unemployment, and low inflation.
In macroeconomics governments use monetary policy and fiscal policy to achieve macroeconomic goals, such as lowering unemployment and increasing economic growth.
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Monetary and Fiscal Policies
Macroeconomic policy is carried out through monetary policy and fiscal policy:
Monetary policy, which involves policies that affect bank lending interest rates, and financial capital markets, is conducted by a nation’s central bank. For the United States, this is the Federal Reserve.
Fiscal policy, which involves government spending and taxes, is determined by a nation’s legislative body. For the United States, this is the Congress and the executive branch, which establishes a Federal Budget.
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Medical Debt
How sick would you need to feel in order to miss school or work? At that point, would you seek medical attention?
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Discussion: Medical Debt
1 How could an unexpected medical expense affect your life? What would you need to change about your life in order to pay back the debt? What are the opportunity costs of those changes?
2 How would a significant amount of debt make you feel? Consider on a small scale, does it bother you if you owe a friend or family member a small amount of money?
3 What kind of plans would you have to reconsider if you had to pay off your medical debt on top of other debt that you may have like a car loan, student loan, credit card debt?
4 Would it be better if the U.S. adopted some form of universal healthcare?
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Understanding Economic Systems
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Market Economies
A market is any situation that brings together buyers and sellers of goods and services.
In a market economy, decisions about that products are available and at what prices are determined through the interaction of supply and demand.
A competitive market has a large numbers of buyers and sellers, so no one can control the market price.
A free market is one in which the government does not intervene in any way.
A free and competitive market economy is the ideal type of market economy because what is supplied is exactly what consumers demand.
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Planned Economies
In a planned or command economy economic effort is devoted to goals passed down from a ruler or ruling class, and resources and businesses are owned by the government.
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Economic Systems and Globalization
More countries’ economies are evolving into a mixed-economy which has characteristics of more than one system.
The last few decades have seen globalization evolve as a result of growth in commercial and financial networks that cross national borders, making businesses and workers from different economies increasingly interdependent.
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Democracy vs. Autocracy
What are the biggest problems that you see in your community?
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Discuss Democracy vs. Autocracy
China's president, Xi Jinping, argues that autocracies, governments having one ruler with absolute power, and their corresponding command economies are best positioned to meet the challenges of modern times. It is President Xi's belief that because building consensus slows down decision-making, democracy cannot keep up with a fast-moving world.
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Microeconomics
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What is Demand?
Demand: the amount of some good or service consumers are willing and able to purchase at each price.
Price: what a buyer pays for a unit of a specific good or service.
Quantity demanded: total number of units purchased at a specific price.
The law of demand states that, other things being equal, a higher price typically leads to a lower quantity demanded.
A demand curve shows the relationship between quantity demanded and price in a given market on a graph, as shown above.
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Change in Demand
A change in demand refers to a shift in the entire demand curve. The entire demand curve will either shift right or shift left.
Factors affecting demand: preferences, incomes, prices of substitutes and complements, expectations, population, etc.
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What is Supply?
Supply: the amount of some good or service a producer is willing to supply at each price.
Quantity supplied: total number of units supplied at a specific market price.
The law of supply says that a higher price typically leads to a higher quantity supplied.
A supply curve, shown above, shows the relationship between quantity supplied and price on a graph.
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Change in Supply
A shift in supply means a change in the quantity supplied at every price.
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Equilibrium
When the price is below the equilibrium level, excess demand or a shortage will exist.
If the price is above the equilibrium level, excess supply or a surplus will exist.
In either case, economic pressures will push the price toward the equilibrium level.
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Jobs Outlook
What is your dream job?
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Discussion: Jobs Outlook
1 What are the highest paying occupations? Why are these occupations so high paying?
2 What are the fastest growing occupations? Why are these occupations growing so fast? Does a fast-growing occupation result in higher pay? Why or why not?
3 What are some business jobs that are high paying vs. lower paying? What is the difference between these occupations as far as skill and number of people who are able to do the jobs?
4 What are some surprising jobs? They can be surprising because they are new to you or because you expected the pay would be different.
5 Explore cost of living differences between different cities.
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Macroeconomics
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Gross Domestic Product (GDP)
The most basic measure of economic growth is the gross domestic product (GDP). GDP is the total market value of all final goods and services produced within a nation’s borders each year. When GDP rises, the economy is growing. GDP is among the most important ways to evaluate a nation’s economic health.
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Business Cycles
Upward and downward changes in business activity
1 Recession
2 Recovery
3 Depression
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Employment
Three categories of unemployment:
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Price Stability
Price stability occurs when prices remain largely unchanged and there isn’t rapid inflation or deflation.
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Measuring Inflation
Consumer Price Index (CPI): measures changes in the price level of consumer goods and and services purchase by households.
The CPI market basket consists of 8 major groups:
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Monetary Policy
Monetary policy refers to a government’s programs for controlling the amount of money circulating in the economy and interest rates.
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Fiscal Policy
The other economic tool used by the government is fiscal policy, its program of taxation and spending. By cutting taxes or by increasing spending, the government can stimulate the economy.
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Get the Most from Career and Self Development
Explore all the resources available to you at your school that can help you develop personally and professionally.
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Closing Slide
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Questions…..
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Next steps…..
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Reminders about student hours, upcoming deadlines, campus activities ….
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Storyset Illustration Library
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