How Economics Affects
Business
Other Teaching Tools 2.3
Video Notes 2.4
Brief Chapter Outline and Learning Goals 2.5
Lecture Outline and Lecture Notes 2.7
Career and Study Skills Notes 2.23
Career Development: Career Exploration and Professional Help 2.23
study skills: Keys to Good Study Habits 2.24
Lecture Links 2.25
lecture link 2-1 Europe is Shrinking 2.25
lecture link 2-2 When Disaster Changes the Economic Rules 2.25
LectURE LINK 2-3 Capitalism in Crisis 2.26
LectURE LINK 2-4 Other Economic Indicators 2.28
LectURE LINK 2-5 Controlling Your Personal Money Supply 2.29
Bonus Internet Exercises 2.30
Bonus INternet Exercise 2-1 Know Your History of Economics 2.30
Bonus INternet Exercise 2-2 Exploring the Gross Domestic Product 2.31
Bonus INternet Exercise 2-3 The Power of the Fed 2.32
Critical Thinking Exercises 2.33
critical thinking exercise 2-1 Applying Economic Principles to 2.33
Education
Critical thinking Exercise 2-2 Standard of Living Comparison: 2. 34
Better/Same/Worse?
Critical thinking Exercise 2-3 How Businesses Help Nonprofits 2.36
Critical thinking Exercise 2-4 Balancing the Federal Budget 2.37
Bonus Cases 2.40
Bonus case 2-1 Foundations of the Capitalist System 2.40
Bonus case 2-2 Katrina’s Aftermath (Video Case) 2.42
Bonus case 2-3 The Rule of 72 2.45
Other Teaching Tools
For a description of each of these valuable teaching tools, please see the Preface in this manual.
Student Learning Tools
Student Online Learning Center (OLC) www.mhhe.com/diasbusiness
Student Study Guide
Spanish Translation Glossary (OLC)
Spanish Translation Quizzes (OLC)
Instructor Teaching Tools
Annotated Instructor’s Resource Manual
IRCD (Instructor’s Resource Manual, Test Bank, PowerPoints, EZtest)
Asset Map
Online Learning Center (OLC) www.mhhe.com/diasbusiness
PageOut
PowerPoint Presentations (on IRCD and OLC)
Test Bank
Business Videos on DVD
Enhanced Cartridge option
Spanish Translation Glossary (OLC)
video NOTES
Twenty videos are available, geared to individual chapter topics. The teaching notes for these videos is included in the Video Notes section of this Instructor’s Resource Manual, beginning on page V.01.
Video 2: “Katrina’s Aftermath”
Hurricane Katrina’s winds and water topped New Orleans’ levees and flooded the city. This video features an economist discussing the economic issues that must be confronted in rebuilding the city.
(Bonus Case 2-2, “Katrina’s Aftermath,” on page 2.42 of this manual relates to this video.)
BRIEF CHAPTER OUTLINE AND LEARNING GOALS
CHAPTER 2
How Economics Affects Business
I. Understanding Economics
Learning objective 1
Understand the basics of economics.
A. Basics of Economics
B. Microeconomics and Macroeconomics
C. Economic Theorists
D. Supply and Demand
Learning objective 2
Explain supply and demand.
II. Free Market Capitalism
Learning objective 3
Describe free market capitalism and degrees of competition.
A. Capitalism in Free Markets
III. Socialism and Communism
Learning objective 4
Understand the differences between socialism and capitalism.
A. Socialism
1. The Benefits of Socialism
2. The Negative Consequences of Socialism
B. Communism
C. The Trend toward Mixed Economies
IV. Economic Indicators
Learning objective 5
Discuss the three major indicators of economic conditions.
A. Gross Domestic Product
B. Unemployment
C. Price Indexes
D. Fiscal and Monetary Policy
V. Summary
LECTURE OUTLINE AND LECTURE NOTES
CHAPTER OPENING PROFILE
WTRG Consulting (Text pages 38-39)
The opening profile of this chapter focuses on Jim Williams, owner of WTRG Consulting, a business that provides macroeconomic and industry information to companies. Jim uses macroeconomic theory to help clients, such as stock traders and oil companies, forecast trends and prices into the future. This profile illustrates how basic economic principles are used daily by businesses of all types.
Lecture outline lecture notes /I. Understanding Economics
Learning objective 1
Understand the basics of economics. (Text page 40)
A. Economics impacts every business, small or large.
B. Basics of Economics
1. ECONOMICS is the study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals.
2. These resources (“factors of production” from Chapter 1) are land, labor, capital, entrepreneurship, and knowledge.
C. Microeconomics and Macroeconomics
1. There are two basic types of economic study: macro and micro.
a. MACROECONOMICS is the study that looks at the operation of a nation’s economy as a whole.
b. MICROECONOMICS is the study that looks at the behavior of people and organizations in particular markets.
2. Some economists define economics as the allocation of “scarce” resources.
a. Resources are scarce and need to be divided among people.
b. However, there aren’t enough known resources to do that.
3. RESOURCE DEVELOPMENT is the study of how to increase resources and to create the conditions that will make better use of those resources.
4. Businesses can contribute to an economic system by inventing products that increase available resources (example: genetically modified foods).
D. Economic Theorists
1. The English economist Thomas Malthus believed that population growth would outstrip resources.
a. In response, Thomas Carlyle called economics “the dismal science.”
b. Many still believe, like Malthus, that the solution to poverty is birth control.
c. World population is currently growing more slowly than expected.
d. But population in the developing world will continue to climb quickly.
2. The challenge is to determine what makes some countries relatively rich and other countries relatively poor, then to implement policies that lead to increased prosperity for everyone.
3. Scottish economist Adam Smith advocated creating wealth through entrepreneurship.
a. Rather than divide fixed resources, Smith envisioned creating more resources so that everyone could be wealthier.
b. In 1776, Smith wrote a book called The Wealth of Nations in which he outlined steps for creating prosperity.
c. Smith believed that freedom was vital to the survival of any economy.
d. Also, he believed that people will work hard if they have incentives for doing so.
4. Smith believed that businesspeople work primarily for their own prosperity.
a. The INVISIBLE HAND is a phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all.
b. Basically, this meant that a person working hard to make money for his or her own personal interest would (like an invisible hand) also benefit others.
5. Some people end up with so much wealth; they would not be able to spend it all within a lifetime.
a. One such entrepreneur, Bill Gates, has set up the largest charitable foundation in history.
b. Warren Buffet has pledged to contribute part of his wealth to the Gates Foundation each year.
Learning objective 2
Explain supply and demand. (Text pages 44-47)
E. Supply and Demand
1. SUPPLY refers to the quantity of products that manufacturers or owners are willing to sell at different prices at a specific time.
a. The amount supplied will increase as the price increases (direct relationship).
b. The quantity producers are willing to supply at certain prices is illustrated on a supply curve.
2. DEMAND refers to the quantity of products that people are willing to buy at different prices at a specific time.
a. The quantity demanded will decrease as the price increases (inverse relationship).
b. The quantities consumers are willing to buy at certain prices are illustrated on a demand curve.
3. Supply and demand interact to determine price.
a. At the equilibrium price, the supply and demand curves cross, and the quantity demanded equals the quantity supplied.
b. The equilibrium point is the point at which the amount of goods sought by buyers is equal to the amount of goods produced by suppliers.
4. Business cycles are the periodic rises and falls that occur in economies over time.
a. The business cycle involves a common pattern of rapid growth (recovery and prosperity) alternating with a period of decline (contraction or recession).
b. The business cycle is also known as the economic cycle.
Self check Questions (Text pages 47)
1. How are macroeconomics and microeconomics different?
2. What theory did Adam Smith develop? Describe it in your own words.
3. How are supply and demand interconnected? / PowerPoint 2-1
Chapter Title
(Refers to text page 38)
PowerPoint 2-2
Learning Objectives
(Refers to text page 39)
TEXT REFERENCE
Real World Business Apps
(Box in text on page 41)
Ashon, owner of a new Internet consulting business, has read a news article about economic forecasts. At first, he does not understand the terminology and assumes the information is irrelevant to his firm.
PowerPoint 2-3
Understanding Economics
(Refers to text pages 40-41)
bonus internet
exercise 2-1
Know Your History of Economics
This Internet exercise is designed to help students gather information about economics from a historic perspective. (See complete exercise on page 2.30 of this manual.)
PowerPoint 2-4
Understanding Economics
(Refers to text pages 42-43)
Lecture link 2-1
Europe Is Shrinking
According to the United Nations, Europe’s population will shrink by more than 90 million people in the next 50 years. (See complete lecture link on page 2.25 of this manual.)
critical thinking
exercise 2-1
Applying Economic Principles to Education
Principles such as competition and productivity apply to nonprofit organizations, such as schools, as well as businesses. (See complete exercise on page 2.33 of this manual.)
TEXT Figure 2.1
The Supply Curve at
Various Prices (Box in text on page 44)
PowerPoint 2-5
Understanding Economics
(Refers to text pages 44-47)
TEXT Figure 2.2
The Demand Curve at Various Prices (Box in text on page 45)
lecture link 2-2
When Disaster Changes the Economic Rules
Hurricane Katrina changed the Gulf states’ economies in many ways. Demand for certain products increased and shortages developed. (See complete lecture link on page 2.25 of this manual.)
TEXT Figure 2.3
The Equilibrium Point (Box in text on page 46)
TEXT Figure 2.4
The Business/Economic Cycle (Box in text on page 46)
PowerPoint 2-6
Understanding Economics
(Refers to text pages 46-47)
II. Free-Market Capitalism
Learning objective 3
Describe free market capitalism and degrees of competition. (Text pages 47-49)
A. In a free-market, decisions about what to produce and in what quantities are made by the market.
1. Consumers send signals to producers about what to make, how many, and so on through the mechanism of price. (Indianapolis Colts t-shirts are the example in the text.)
2. In the U.S. the price tells producers how much to produce, reducing the chances of a long-term shortage of goods.
3. Prices in a free market are not determined by sellers; buyers and sellers negotiating in the marketplace determine them.
B. Competition within Free Markets
1. Competition exists in different degrees, ranging from perfect to nonexistent.
2. PERFECT COMPETITION exists when there are many sellers in the market, no seller is large enough to dictate the price of a product, and the products are similar.
a. Sellers produce products that appear to be identical.
b. There are no true examples of perfect competition, but agricultural products are often used as an example.
3. MONOPOLISTIC COMPETITION exists when a large number of sellers produce products that are very similar but are perceived by buyers as different.
a. Product differentiation, making buyers think similar products are different, is a key to success.
b. The fast food industry is an example.
4. An OLIGOPOLY is a form of competition in which just a few sellers dominate a market.
a. The initial investment required to enter the market is usually high.
b. Prices among competing firms tend to be close to the same.
c. Like monopolistic competition, product differentiation is key to market success.
d. Examples include breakfast cereal and soft drinks.
5. A MONOPOLY occurs when there is only one seller for a product or service.
a. U.S. laws prohibit the creation of monopolies, but do permit approved monopolies in markets for public utilities.
b. New laws have ended the monopoly status of utilities in some areas, creating intense competition among utility companies.
c. Deregulation is meant to increase competition and lower prices for consumers.
d. Example: cable companies
Self check Questions (Text pages 50)
1. What is a free market system?
2. What are the four types of competition?
3. Do you think one type of competition would be better than another in developing countries? Why or why not? / Bonus Case 2-1
Foundations of the
Capitalist System
What are the moral, ethical, and spiritual foundations of capitalism? (See complete case, discussion questions, and suggested answers on page 2.40 of this manual.)
Bonus Case 2-2
Katrina’s Aftermath (Video Case)
Despite numerous efforts by businesses, government agencies, and nonprofit organizations to end poverty, poverty still persists. That point was illustrated vividly when hurricane Katrina hit the Gulf Coast region of the United States, and was especially apparent in New Orleans, Louisiana. (See complete case, discussion questions, and suggested answers on page 2.42 of this manual.)
PowerPoint 2-7
Free Market Capitalism
(Refers to text pages 48-49)
TEXT REFERENCE
Career Development,
Career Exploration and Professional Help
(Box in text on page 49)
One of the challenges students face is the career learning process. An additional exercise and discussion is available in this chapter on page 2.23 in this manual.
III. Socialism and Communism
Learning objective 4
Understand the differences between socialism and capitalism. (Text pages 50-55)
A. Socialism
1. SOCIALISM is an economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be distributed among the people.
a. Entrepreneurs can own small businesses, but their profits are steeply taxed to pay for social programs.
b. Advocates of socialism acknowledge the major benefits of capitalism, but believe that wealth should be more evenly distributed.
c. Socialism is the guiding economic principle for many countries in Europe.
2. The benefits of socialism
a. The major benefit of socialism is social equality.
b. Income is taken from the wealthier people and redistributed to the poorer members of the population.
c. Workers in socialist countries are given free education, free health care, free child care, and more employee benefits.
3. The negative consequences of socialism
a. Socialism may create equality, but it takes away some work incentives.
b. Tax rates in some nations once reached 85%.
c. Because wealthy professionals have very high tax rates, many of them leave socialist countries for countries with lower taxes.