What is a Business?
An organization that strives for a profit by providing goods and services desired by its customers.
Goods and Services
Goods are tangible items such as cars, televisions, or soda. Services (action or work performed for monetary compensation) are haircuts, hotel stays, or roll...
An organization that strives for a profit by providing goods and services desired by its customers.
Goods and Services
Goods are tangible items such as cars, televisions, or soda. Services (action or work performed for
monetary compensation) are haircuts, hotel stays, or roller-coaster rides
Revenue, Cost and Profit
Revenue is the money a company receives by providing services or selling goods to customers.
Costs are expenses for rent, salaries, supplies, transportation, and many other items that a company
incurs from creating and selling goods and services.
If a business has money left over after it pays all costs, it has a profit. A company whose costs are
greater than revenues shows a loss
Capitalism
aka Private Enterprise System, is based on competition in the marketplace and private ownership of
the factors of production (resources).
In a competitive economic system, a large number of people and businesses buy and sell products
freely in the marketplace.
In pure capitalism, all the factors of production are owned privately, and the government does not
try to set prices or coordinate economic activity.
Communism
Government owns virtually all resources and controls all markets. Centralized economic decision-
making: the government decides what
- where
- how much will be produced
- where the raw materials and supplies will come from
- who will get the output and,
- what the prices will be
Socialism
Basic industries are owned by the government or by the private sector under strong government
control. A socialist state controls critical, large-scale industries such as transportation,
communications, and utilities.
Mixed Economic Systems
Pure capitalism and communism are extremes; real-world economies fall somewhere between the
two. They use more than one economic system. Sometimes, the government is basically socialist and
owns basic industries. In Canada, the government owns the communications, transportation, and
utilities industries, as well as some of the natural-resource industries. It also provides health care to
its citizens
,Macroeconomics and Microeconomics
Macroeconomics is the study of the economy as a whole. It looks at aggregate data for large groups
of people, companies, or products considered as a whole.
Microeconomics focuses on individual parts of the economy, such as households or firms
Types of Unemployment
● Frictional unemployment is short-term unemployment that is not related to the business cycle.
People may wait for the better jobs or new college graduates.
● Structural unemployment is caused by a mismatch between available jobs and the skills of
available workers in an industry or a region. Fall in birthrate=Fewer teachers
● Cyclical unemployment - occurs when a downturn in the business cycle reduces the demand for
labor throughout the economy.
● Seasonal unemployment, which occurs during specific times of the year in certain industries.
Inflation
The situation in which the average of all prices of goods and services is rising is called inflation.
● Demand-pull inflation occurs when the demand for goods and services is greater than the supply.
● Cost-push inflation is triggered by increases in production costs, such as expenses for materials
and wages
Achieving Macroeconomic goals
● To reach macroeconomic goals: economic growth, employment and price stability government can
use two tools - monetary policy and fiscal policy.
● Monetary policy - government’s programs for controlling the amount of money circulating in the
economy and interest rates. Changes in the money supply affect both the level of economic activity
and the rate of inflation.
● Fiscal policy - government program of taxation and spending. By cutting taxes or by increasing
spending, the government can stimulate the economy.
Demand and Supply
● Demand is the quantity of a good or service that people are willing to buy at various prices. The
higher the price, the lower the quantity demanded, and vice versa. A graph of this relationship is
called a demand curve.
● Supply, the quantity of a good or service that businesses will make available at various prices. A
graph of the relationship between various prices and the quantities a business will supply is a supply
curve
Perfect Competition
Characteristics of perfect (pure) competition include:
● A large number of small firms are in the market. #Price Takers
, ● The firms sell similar products; that is, each firm’s product is very much like the products sold by
other firms in the market.
● Buyers and sellers in the market have good information about prices, sources of supply, and so on.
● It is easy to open a new business or close an existing one.It is ideal and no example can show all
characteristics, but agriculture can come close.
Pure Monopoly
● The market structure in which a single firm accounts for all industry sales of a particular good or
service. #Price Makers
● The firm is the industry.
● This market structure is characterized by barriers to entry—factors that prevent new firms from
competing equally with the existing firm (technological or legal)
Monopolistic Competition
● Many firms are in the market.
● The firms offer products that are close substitutes but still differ from one another.
● It is relatively easy to enter the market. Under monopolistic competition, firms take advantage of
product differentiation.
Oligopoly
An oligopoly has two characteristics:
● A few firms produce most or all of the output.
● Large capital requirements or other factors limit the number of firms
Balance of Trade
- The value of a country’s exports - the value of its imports = Balance of trade.
- A country that exports more than it imports has a favorable balance of trade, called a trade surplus.
- A country that imports more than it exports has an unfavorable balance of trade, or a trade deficit.
- When imports exceed exports, more money from trade flows out of thecountry than flows into it.
- Free trade is the policy of permitting the people and businesses of a country to buy and sell where
they please without restrictions.
- The opposite of free trade is protectionism, in which a nation protects its home industries from
outside competition by establishing artificial barriers such as tariffs and quotas.
Barriers to Trade
Tariff Barriers
A tariff is a tax imposed by a nation on imported goods. It may be a charge per unit (per barrel of oil
or per new car); it may be a percentage of the value of the goods (5% of a $500,000 shipment of
shoes); or it may be a combination.
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