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Chapter OverviewChapter Overview
Economics—social science that analyzes the choices made by people and governments in allocating scarce resources.
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EconomicsEconomics
Microeconomics—study of small economic 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 government policies affect the standards of living of its citizens.
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Microeconomics:Microeconomics:The Forces of Demand and SupplyThe Forces of Demand and Supply
Demand—willingness and ability of buyers to purchase goods and services.
Supply—willingness and ability of sellers to provide goods and services.
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Factors Driving DemandFactors Driving Demand
Each person must choose Between saving and spendingHow to allocate spending
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Factors Driving DemandFactors Driving Demand
Demand CurveGraph of the amount of a product that
buyers will purchase at different pricesDemand curves typically slope downward
and to the right, meaning that lower prices attract larger purchases
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Factors Driving SupplyFactors Driving Supply
Businesses must chose how to use their resources to obtain the best profits
Supply CurveShows the relationship between different
prices and the quantities that sellers will offer for sale, regardless of demand
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Factors Driving SupplyFactors Driving Supply
Central role in determining the overall supply of goods and services is played by factors of productionNatural resourcesHuman resourcesPhysical facilitiesEntrepreneurship
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How Demand and Supply InteractHow Demand and Supply Interact
Separate shifts in demand and supply have obvious effects on product price and availability
Equilibrium price
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Macroeconomics: Issues for theMacroeconomics: Issues for theEntire EconomyEntire Economy
Capitalism: The Private Enterprise System and Competition.Private enterprise system—economic
system in which business success or failure depends on how well firms match and counter the offerings of competitors; also known as capitalism.
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Macroeconomics: Issues for theMacroeconomics: Issues for theEntire EconomyEntire Economy
Capitalism: The Private Enterprise System and CompetitionPure competitionMonopolistic competitionOligopolyMonopolyDeregulation
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Planned Economies: Planned Economies: Communism and SocialismCommunism and Socialism
Communism: planned economic system in which private property is eliminated, goods are owned in common, and factors of production and production decisions are controlled by the state
Socialism: planned economic system characterized by government ownership and operation of all major industries
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Planned Economies: Planned Economies: Communism and SocialismCommunism and Socialism
What’s Ahead for Communism?Many formerly communist nations have
undergone dramatic changes in recent year after introducing private enterprise systems
Has not been smoothCommunism remains firmly entrenched in
just a few countries
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Mixed Market EconomiesMixed Market Economies
Economic system that combines characteristics of both planned and market economies in varying degrees, including the presence of both government ownership and private enterprisePrivatization
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Evaluating Economic PerformanceEvaluating Economic Performance
Flattening the Business CycleEconomies flow through various stages of
a business cycle
Recession—cyclical economic contraction that lasts for six months or longer.
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Productivity and the Nation’s Gross Productivity and the Nation’s Gross Domestic ProductDomestic Product
Productivity—relationship between the goods and services produced in a nation each year and the inputs needed to produce them.
Gross domestic product—the sum of all goods and services produced within a nation’s boundaries each year.
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Price-Level ChangesPrice-Level Changes
Inflation—rising prices caused by a combination of excess consumer demand and increases in the costs of raw materials, human resources, and other factors of production.Hyperinflation—economic situation
characterized by soaring prices
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Price-Level ChangesPrice-Level Changes
Demand-pull inflationExcess consumer demand
Cost-push inflationGenerated by rises in costs of factors of production
Recent Fears about Deflation
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Measuring Price Level ChangesMeasuring Price Level Changes
Consumer Price Index (CPI)—measures the monthly average change in prices of goods and servicesMarket Basket—compilation of the goods
and services most commonly purchased by urban consumers
Producers Price Index (PPI)For Finished GoodsFor Intermediate Goods
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Employment LevelsEmployment Levels
Unemployment rate— an indicator of a nation’s economic healthTop Job Losses by
Industry in the Recent Recession
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Managing the Economy’s PerformanceManaging the Economy’s Performance
Monetary Policy—government actions to increase or decrease the money supply and change banking requirements and interest rates to influence banker’s willingness to make loans.
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Managing the Economy’s PerformanceManaging the Economy’s Performance
Fiscal Policy—government spending and taxation decisions designed to control inflations, reduce unemployment, improve the general welfare of citizens, and encourage economic growth.
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Fiscal PolicyFiscal Policy
Budget—organization’s plan for how it will raise and spend money during a given period of time.
Budget deficit—funding shortfall that results when the government spends more than the amount of money it raises through taxes and fees
National debt Budget surplus Balanced budget
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The U.S. Economy: A Roller Coaster RideThe U.S. Economy: A Roller Coaster Ride
Economic recession, wars, and terrorism battered the U.S. economy.UnemploymentInflation and DeflationProductivityConsumer Spending
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Creating a Long-Term Global StrategyCreating a Long-Term Global Strategy
Global Economic ChallengesInternational terrorismShift to a global Information economyAging of the world’s populationsImproving quality and customer serviceEnhancing competitiveness of every
country’s workforce.