Chapter 3 - Economic Challenges Facing Contemporary Business Flashcards
Economics
The study of the choices people make when dividing up their scarce resources
Microeconomics
Study of small economics units, such as individual consumers, families, and businesses.
Macroeconomics
Study of a nation’s overall economic issues, such as how an economy maintains and allocates resources and how a government’s policies affect its citizens’ standard of living of
Demand
The willingness and ability of buyers to purchase goods and services at different prices.
Supply
The willingness and ability of sellers to provide goods and services for sale at different prices.
Factors driving demand
- Customer preferences
- Number of buyers
- Buyers’ income
- Price of substitute goods
- Price of complementary goods
- Optimism or pessimism of future expectations
Typically slopes downwards
Factors driving supply
- Costs or availability of inputs
- Costs of technologies
- Taxes
- Number of suppliers
Typically slopes upwards
How do demand and supply interact?
The equilibrium price identifies the prevailing market price and is found at the intersection of the supply and demand curves. The intersection is known as the equilibrium where demand = supply
What does capitalism depend on?
Capitalism depends on competition. In this kind of economic system, different industries exhibit different competitive market structures.
Four basic types of competition
1) Pure competition
2) Monopolistic competition
3) Oligopoly
4) Monopoly
Pure competition
There are a large number of sellers of a product that cannot be differentiated and, thus, no one firm has a significant influence on price.
Other prevailing conditions are ease of entry of new firms into the market and perfect market information.
Oligopoly
A few sellers supply a sizable portion of products in the market. They exert some control over price, but because their products are similar when one company lowers prices, the others follow.
Oligopoly
A few sellers supply a sizable portion of products in the market.
They exert some control over price, but because their products are similar when one company lowers prices, the others follow.
Monopoly
There is only one seller in the market. The market could be a geographical area, such as a city or a regional area, and does not necessarily have to be an entire country.
The single seller is able to control prices.
Planned economy
Government control and communism determine business ownership, profits, and resource allocation to accomplish government goals rather than the goals of individuals.
