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Nickels McHugh McHugh

Nickels McHugh McHugh. 2. How Economics Affects Business: The Creation and Distribution of Wealth. Chapter. 2- 2. Economics: Create Wealth. Use Scarce Resources to Produce Goods & Services To Distribute Among Competing Groups/Individuals Micro v. Macro Resource Development.

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Nickels McHugh McHugh

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  1. Nickels McHugh McHugh

  2. 2 How Economics Affects Business: The Creation and Distribution of Wealth Chapter 2-2

  3. Economics: Create Wealth • Use Scarce Resources to Produce Goods & Services To Distribute Among Competing Groups/Individuals • Micro v. Macro • Resource Development

  4. Four “What’s” ofan Economic System • What is produced? • What amount is produced? • What is the method of output distribution? • What is the rate of economic growth? Adapted from: Edwin Mansfield Economics (New York: W.W. Norton, 1976), p.8

  5. Economic Theories • Thomas Malthus (Early 1800s) • “Dismal Science” • Too many people • Adam Smith (1776) • Freedom is vital • “Invisible Hand”

  6. Three Economic Systems Mixed Socialism (Highly Controlled) (Little Control) Communism Capitalism

  7. Free-Market Capitalism • Private Property • Profit/Ownership • Freedom of Competition • Freedom of Choice

  8. Supply Curve High Price(P) S High Low Quantity(S)

  9. Demand Curve High Price(P) D Low Quantity(D) High

  10. Equilibrium Point Surplus High Market Equilibrium Price S D Shortage Low Quantity High

  11. Free-Market Competition Monopolistic Competition Oligopoly One Many Perfect Competition Monopoly Sellers

  12. Perfect Competition Sellers Buyer

  13. Monopolistic Competition:Many Sellers With Perceived Differences • Fast Food • Colleges

  14. Oligopoly: Few Sellers • Automobiles • Tobacco

  15. Monopoly: One Seller • Diamonds • Utilities • Microsoft?

  16. Limits of Free-Markets • Inequality of Wealth- Causes National & World Tension • Greed Compromises Ethics • Potential Environmental Damage • Limitations Push Country towards Socialism = Government Regulation

  17. Number of Workers per Social Security Recipient Source: Investors.com

  18. Socialism • Private & Public Ownership • Some Choices are Limited • Creates Social Equality • Reduces Individual Incentive- Brain Drain

  19. IndustrializedNations’ Tax Rate Source:Parade Magazine, Apr. 12, 1998.

  20. Communism • Public Ownership • Productive Capacity • Capital • Central Planning/Controlled Economy • Managers = Mandatory Party Membership

  21. Mixed Economies • Free-Market Economy = Capitalism • Command Economy • Socialism • Communism • Trend Results in Blend/Mix • Capitalism > Socialism • Socialism > Capitalism

  22. Why is the U.S.an Economic Success? Major ReasonPercent* Constitution 85 Free Elections 84 Free Enterprise System 81 Abundant Resources 78 Cultural Diversity 71 * Respondents could choose more than one. Source: Investors Business Daily Survey

  23. U.S. Economy • Key Economic Indicators • Productivity • Business Cycles • Recession • Depression • Recovery • Stabilization • Fiscal Policy • Monetary Policy • National Debt

  24. Key Economic Indicators • Gross Domestic Product (GDP) • Unemployment Rate • Price Indexes • Consumer Price Index(CPI) • Producer Price Index(PPI)

  25. U.S. GrossDomestic Product In Billions of U.S. $ Source: U.S. Dept. of Commerce, Bureau of Economic Analysis

  26. Share of World GDP(%) 19702001 North America 37 38 Asia 21 28 Europe 33 28 South America 7 4 Africa /Australia 2 2 Source: Investor’s Business Daily, Apr. 29, 2003.

  27. U.S. Unemployment(%) Source: U.S. Bureau of Labor Statistics

  28. What Makes Up TheConsumer Price Index? SOURCE: U.S. Bureau of Labor Statistics

  29. Consumer Price Index 1982-84 = 100 Source: U.S. Dept. of Labor, Bureau of Labor Statistics

  30. % Change in Labor Productivity- U.S. Source: U.S. Dept. of Commerce, Bureau of Labor Statistics

  31. Where Does theGovernment Get Its Money? Source: Office of Management & Budget, 2002

  32. What Federal Dollars Buy (2002) Human Resources. – 63% Interest 7.9% Other 5.7% Defense - 17.5% Physical Resources 5.9% Source: Office of Management & Budget

  33. What $1 Billion Can Buy • An Egg McMuffin and large coffee for the President & his 2,000 Secret Service agents every morning for 575 years. • Average annual grocery bill for 250,000 families of 4. • One year’s food for 5 million cats & dogs. • Tuition, room and board for freshman classes at Brown, Cornell, Harvard, Pennsylvania & Yale with $50M leftover for books.

  34. What is the National Debt? • The debt has reached $6.7 trillion+ • If $1,000 bills were stacked: • $1 Million = 4.29 Inches • $1 Billion = 357.5 Feet • $1 Trillion = 67 Miles • The debt is equal to 442.2 miles in $1,000 bills • National Debt Clock- http://www.brillig.com/debt_clock/

  35. State Budget Deficits(’03 & ’04) Billions • California $ 35.0 • New York 12.0 • New Jersey 5.7 • Connecticut 2.5 • Missouri 1.3 • Ohio 0.72 • Nevada 0.64 Source: BusinessWeek March 17, 2003

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